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Determining a Key Employee's Flight Risk

Use this play to assess the likelihood that a key employee will leave the business.

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About the play

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 to ensure retention is understanding how likely it is that a key employee will choose to leave.

Use this play to assess the likelihood that a key employee will leave the business. This play provides a rough measure of the likelihood that a critical incumbent will leave for a different opportunity. The appropriate members of the deal team should come together for the discussion, allowing enough time to discuss each employee’s individual situation.

Preparation

People

HR, Corporate Development, Business Sponsor, Diligence Team

Difficulty

Medium

Materials

Paper and pen, good judgment

Time

30-60 mins

Running the Play:

01

Generate a List of Key Roles and their Associated Employees

Working with your critical stakeholders, create a list of those roles and employees who are key to

  1. the integration and
  2. ongoing operations.  

During the diligence phase, notice employee names that arise during conversations.  They should include:

  • Employee listed in the CIM. 
  • Employees called out on the target website. 
  • Employees on succession plans. 
  • Employees in leadership development programs
  • Employees noted as high potentials
  • Employees who have received significant compensation increases, bonuses, equity, etc. in the past three years. 
02

Review Key Roles

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.

03

Discuss each Key Employee’s Individual Situation

Working as a group, review each employee as an individual. Discuss what the team knows about each key employee, their criticality to deal success, and what you know of their professional and personal life. 

  • Compensation: How does the employee perceive their pay?  Will they be getting a payout related to the deal? Will their compensation change significantly after integration? 
  • Marketability: Does the employee have a skill that would make it easy for them to find another job? Have they been offered other positions?  
  • Morale: How is the employee’s attitude at work? Are they feeling a lot of stress or complaining about their environment? Are there recent changes in how they behave at work? 
  • Work relationships: How does the employee get along with their team members and manager?  Do they have a close bond with their co-workers?
  • What’s going on in the employee’s personal life?
  • What else is important to know about the employee?

Your group should not limit your discussion to only these factors. Remember, these are a guide, not a hard and fast rule. 

04

Calculate the Flight Risk Factors

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.

Risk Factors:

  • Will receive a significant payout when the deal closes (2 points).
  • Total compensation is under market or perceived as under market (2 points).
  • Has received other job offers (2 points).
  • Low engagement or high stress, demonstrated by recent changes in work habits or attitudes and recent absenteeism, or signs of poor work-life balance like working excessive hours. (1 point)
  • Complicated manager relationships, including being turned down for a promotion. (1 point)
  • Challenging peer relationships or inability to bond with team members. (1 point)
  • Low tenure either at the company or in their current role. (1 point)
  • Known life changes or other personal factors. (1 point)

Example:

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. 

05

Total the Flight Risk factors

Take the total points for each employee and understand how likely they are to depart the organization during either integration or operations.  

Total points: Risk of Flight

1 or less: Improbable

2 or 3: Unlikely

4 or 5: Possible

6 or 7: Likely

8 or more: Almost Certain

06

Use this Information to Shape the Retention Plan

Once you understand the risk of flight, you can combine it with the criticality of the role to determine the right kinds of retention incentives. 

Both role criticality and retention incentives are discussed in more detail in The HR Practitioner’s Guide to Mergers & Acquisitions Due Diligence.

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