“Retaining the right people can make or break a deal,” said David McNeice, head of M&A at Towers Watson in Australia
An ideal employee retention strategy is still elusive in companies as the percentage of employees who stay when the lock-in agreements expire were below expectations, according to a study conducted by Towers Watson, a global professional services company.
Concerns about changing organizational culture affects employee retention
Based on the Towers Watson Global M&A Retention Study, 68% of the respondents stated that they retained more than 80% of employees who signed a retention agreement during the entire period.
The percentage of those respondents that retained the same rate of employees (over 80%), one year after the expiration of the retention agreement declined to 43%.
The study found that the main factor affecting employee retention is the concern regarding the changing organizational culture.
Retention agreements must be used wisely and productively
According to the study, employee retention has implications for companies in Australia buying into growth or divesting non-core assets. It is critical for companies to retain the leadership and key staff of companies to achieve success over the long-term.
It is imperative for companies involved in mergers & acquisitions (M&A) to understand the cultural and organization implications of a deal. The companies also need to build employee engagement and work individually with key employees as early as possible during the process of the transaction.
The study noted that retention agreements are useful because it allows companies buy time, but it must be used wisely and productively.
Companies normally use retention agreements that include a combination of pay-to-stay and pay-to-perform metrics for senior leased while practicing time-based agreements for nearly 50% for other employees.
Employee retention particularly key talents during mergers & acquisitions is proven significant, according to the study.
A majority of respondents admitted achieving the strategic goals of their transactions. Almost 88% of high-retention companies (with employee retention rate of more than 60% during the full-term of the agreement) successfully obtained their strategic objectives.
On the other hand, only 67% of low-retention companies (with employee retention rate of 40% or lower) expressed a similar view.
Human capital is often the most important asset of companies
David McNeice, head of M&A at Towers Watson in Australia opined, “Retaining the right people can make or break a deal. After all, human capital is very often a company’s most important asset.”
He added that “retention should start with executives” citing the reason that they are “critical to be completely in the board of the company and aligned with goals and strategies of the acquisition.”
McNeice also emphasized that the behavior of executives is significant to employee retention and engagement. He said executives shouldn’t be distracted by concerns regarding their own employment in the future.