Companies that Successfully Retain Top Talent in M&As Start Early, Use Monetary and Non-Monetary Tactics, Towers Watson Survey Finds

Global Survey Reveals Strategies at Companies Successful at Talent Retention

TORONTO, June 19, 2012 /CNW/ - While the vast majority of companies involved in mergers & acquisitions (M&As) use retention agreements to retain key talent, a new survey by global professional services company Towers Watson (NYSE, NASDAQ:TW) shows that companies that are more successful at retention begin the process early - identifying people and tactics - and don't rely solely on money.

The survey, conducted earlier this year, included 180 companies from 19 countries and focused on current retention practices as well as specific tactics used by those companies that the survey identified as more successful in keeping top talent.  The responses revealed the effectiveness of various retention strategies, and also confirmed that, while economic uncertainty has slowed the pace of deal making in some parts of the world, acquisitions and divestitures remain a viable growth strategy for many organizations.  More than half of the respondents completed between two and 10 acquisitions over the last two years.

"With successful deal implementation a core priority for many companies, the focus on retention has intensified.  In today's business world, companies are often buying skills or relying on an acquisition's key talent to meet critical sales or market goals. The ability to retain the right people can make or break a deal" said Eric D'Amours, Leader of M&A Services at Towers Watson in Canada. "Especially when making acquisitions abroad, Canadian organizations increasingly recognize that retaining the right people, with the right skills, in the right roles may mean the difference between success and failure. And despite widespread agreement on the importance of identifying and retaining talent, the complex nature of transactions makes the process that much more challenging - even for those companies with significant M&A experience."

Successful Acquirers Do Things Differently

Since most companies that use retention agreements as part of their overall strategy still face challenges in keeping people, Towers Watson focused on a subset of the acquirers that reported greater success at retention to learn what they did differently. These "successful" buyers included the 44% of respondents who rated their retention agreements as being highly or mostly effective at retaining employees during an acquisition and who also  retained all or nearly all employees through the retention period in past acquisitions.

The survey found that companies with successful retention strategies identify which employees they want to target for retention agreements early in the process.  Almost three-quarters of successful acquirers (72%) determine which employees are asked to sign retention agreements either during the due diligence stage or during the transaction negotiations.  That is twice the number of less successful acquirers (36%) who ask employees to sign agreements during either of those times.  In fact, nearly six in ten (58%) of less successful companies don't ask employees to sign agreements until after the transaction closes.

"Deal makers that are successful at retaining top talent beyond the transaction tend to implement retention agreements early in the cycle, often as early as when a deal gets underway. Some companies will start determining which employees will help the organization move ahead with the deal, as soon as the due diligence process begins. Of course, the sooner companies are able to identify retention targets, the more thorough they can be in designing an effective retention program," said Brian Reidy, Managing Consultant of Towers Watson's Calgary office.

While companies with successful retention strategies use many of the same tactics to retain employees as their less successful counterparts do, they also emphasize certain ones to a much greater extent.  The vast majority (92%) of successful acquirers use retention bonuses, compared with just 53% of less successful companies.  Additionally, three-quarters (74%) of successful companies use personal outreach by managers and leaders, three times the number of less successful acquirers (24%) that use this tactic.

"While money is important, it isn't everything.  In fact, the most effective retention agreements include not just financial incentives, but a mix of tactics, including personal outreach by managers," said Reidy.

Overall Survey Results Show Widespread Use of Retention Agreements

Among the key findings from the overall survey respondents:

• Retention agreements are the primary retention vehicle - used by 84% of acquirers and 70% of sellers -- with retention bonuses the cornerstone of this approach
• Roughly two-thirds to three-quarters or more of both buyers and sellers use agreements, chiefly for senior leaders below the boardroom level, key contributors and technical experts
• Retention bonuses are far more common in North America (reported by 83% of respondents) than either Asia (40%) or Europe (56%); personal outreach by leaders to retention targets shows a similar pattern across the regions
• Ninety percent or more of buyers across all three regions use time-based "pay to stay" provisions in their retention agreements, typically stretching from six months to one year post-close.
• Performance-based metrics are less common, but in use at roughly half the acquiring companies across the regions, with twice as many (74%) using individual performance goals as using organization-wide performance goals (38%).
• Retention efforts can only go so far.  Respondents said that of those employees who leave the organization despite having retention agreements in place, six out of ten cite the deal as one of the primary reasons for leaving.

"When longer term growth is the driver of a transaction, the success depends as much on effectively managing people and the organizational environment as it does on managing the timing and financials.  Whether the growth comes from innovation, sales force or customer service strategies, the execution relies entirely on the talent within the organization. Through being prepared and proactive from a human capital standpoint, business leaders have a tremendous opportunity to step up and influence the ultimate success of a transaction," concluded D'Amours.

About the Survey

The Towers Watson 2012 M&A Retention Survey was conducted from late February 2012 through early April 2012 and includes responses from 180 organizations, including some of the world's largest serial acquirers, from 19 different countries.  The survey report will be available in July.

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Towers Watson has 14,000 associates around the world and is located on the web at towerswatson.com.

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