Premature exit of key employees can significantly affect both integration plans and ongoing operation of the combined business. In many cases, exodus of certain critical team members can destroy deal value.
Because of this effect on the success of the transaction, one of the most important steps for preserving deal value is understanding how to keep key employees onboard to achieve key business objectives.
Use this play to decide what kind of incentives to offer key employees in exchange for remaining onboard. The appropriate members of the deal team should come together for this discussion, allowing enough time to discuss each employee’s individual situation.
HR, Corporate Development, Business Sponsor, Diligence Team
Paper and pen, good judgment
Working with your critical stakeholders, create a list of those roles where the employees are key to 1) the integration and 2) ongoing operations.
During the diligence phase, notice employee names that arise during converations. They should include:
Using the preliminary integration plan, understand which work should be done by an employee at the target company.
For example, if novating supplier agreements is a significant part of the deal, the supplier management leader should be on the list. Look for any roles that should be part of the retention discussions and add them to the list generated in step one.
The factors shared below are common indicators of an employee who is a flight risk.
Each of these factors is worth one point, except for those related to compensation, which are worth two points. The total score then helps ascertain the likelihood of the employee leaving.
Ken is the IT manager of a company that is about to be acquired. He recently turned down a job offer because he has a great relationship with his manager and peers.
However, Ken is starting to show signs of stress and is regularly working more than 40 hours a week. His wife is pregnant, and he’s concerned about having time to bond with the new baby.
In this scenario, Ken has a total of four points: two points for the job offers, one point for the stressful work conditions, and one point for the life change.
After you have determined the risk of flight and the impact of a vacancy, plot each of them into a 5 by 5 matrix, like the one below. This represents the starting point for retention plans.
Boxes with a cent (¢) are unlikely to require any retention, boxes with a dollar ($) suggest a moderate retention package, and boxes with money bags call for a significant retention package.
Your team will need to exercise their best judgment and work closely with other stakeholders to determine the final retention plan for each employee.
To appropriately explore financial incentives, the team will need to know about the payments the employees are already entitled to receive.
To determine the right financial inducements, monies related to the acquisition as well as the employee’s ongoing total rewards need to be considered. It can be hard to retain somebody who’s just been made a millionaire if the retention package to get them to stick around is worth only $50,000!
On the other hand, if the employee won’t get a large payout and has a current pay package worth $70,000 a year, $20,000/year for the next three years can be very compelling.
Short Term Options
Delayed Deal Consideration
Non-financial incentives can be just as important as financial incentives when it comes to long-term retention. Determining non-financial incentives is more art than science, and often requires an understanding of the individual employee’s motives.
The good news is that there are some universal levers organizations can pull to drive retention. These include a compelling culture that fosters professional growth and development, demonstrated opportunities to lead exciting projects, and recognition for a job well done.
These are essential elements of employee engagement, but leaders must communicate them effectively to retain acquired employees.
Many factors will be distinctive and require a one-on-one conversation with the employee. They include items like the span of control, expanded job titles, or even personal commitment to the existing team.
To determine appropriate non-financial incentives, use a modified stay interview. If a critical-to-retain employee is not disclosed on the deal, their current manager may need to hold the stay interview and relay information back to the due diligence team.
The Society for Human Resource Management (SHRM) provides excellent guidance for stay interviews and offers several questions managers may want to ask their employees, including what they look forward to when coming to work, why they stay, what they would change, and what they aspire to achieve in their career.
The business sponsor, corporate development team, and HR practitioner should use this approach to develop a dossier of each key employee’s motivations to stay. They can then use this information to tailor a non-financial incentive package that is likely to meet the employee’s needs and drive retention.