Mergers and acquisitions are hard, but post-merger success can be harder: Up to 90 percent of mergers end up failing, according to the Harvard Business Review. While mergers are complicated and the factors that can contribute to failure are many, one of the biggest impediments to success is when talented employees from both organizations decide not to stick around post-merger.
Willis Towers Watson’s 2017 Global M&A Retention Study finds that, while acquiring companies have been increasingly successful in retaining at least 80 percent of their employees who’ve signed retention agreements through the end of the retention period, only about half retain at least 80 percent of such employees a year after the retention period ends.
“It’s a tale of two results,” says Mary Cianni, WTW’s global M&A practice lead. “Acquirers have made good strides at keeping key talent for an initial period, but there’s room for improvement one year later.”
Companies are failing to use the retention period to capture these employees’ “hearts and minds” for the long term, she says. Retention bonuses — the primary financial award used by companies — are important, but are only part of the equation, says Cianni.
“Personal outreach by leaders, strategic promotions and employees’ participation on task forces are also beneficial and will pay dividends in the years ahead,” she says. Total rewards (learning and development and career opportunities for hi-pos, in particular) can also be key.
The report (based on data from 244 respondents in 24 countries) finds that companies which prioritize early communication with senior leaders — 24 percent of the acquiring companies asked senior leaders at their target companies to sign retention agreements prior to the initial merger agreement signing — tend to have better luck at retaining those leaders than those that do not.
Of course, culture is also important: Nearly half (44 percent) of the employees who left prior to the end of their retention period blame the new or changing culture of the combined organization as the reason for leaving. Other top reasons for leaving include being aggressively pursued by competitors (36 percent) and not liking their new role (25 percent).
“The most successful acquirers realize retention agreements can buy time, but not loyalty,” says Scott Oberstaedt, WTW’s director of executive compensation. “And by not using their arsenal of tools to build loyalty during what can be tumultuous periods, companies often lose talent that would serve them well in the long run.”