What makes people stay with a company? Here’s more evidence of the importance of a positive working environment.
And, of course, cash.
Towers Watson, the global professional services company, looked at the tactics companies used to retain employees after a merger, particularly retention agreements. The agreements worked, but with a few caveats.
According to the 2014 Global M&A Retention Study, 68% of respondents indicated they retained more than 80% of employees who signed a retention agreement, for the duration of the agreement. A year after that period expired, however, things looked different. Only 43% of companies said they retained the majority of those employees. The main reason employees left? Concerns about a changing corporate culture, which was citied by 48%.
“Clearly, companies should pay closer attention to the dynamics that will keep their employees for the long term,” said Mary Cianni, Towers Watson’s global leader of M&A services. “Companies involved in transactions should strive to understand the cultural implications of the deal, build employee engagement and work individually with key employees as early in the deal process as possible. These actions increase the likelihood that essential employees stay on board beyond the retention agreement period to ensure the success of the merger.”
While the survey focused on the impact of mergers, the findings reinforce the importance of keeping employees engaged and motivated, particularly if a company or department is undergoing any kind of transition.
Hanging on to Key Players
A company’s retention strategy can have a measurable impact on the success of a merger. Creating that strategy should include carefully identifying which employees are most crucial to a smooth transition. Companies that had a high rate of retention were significantly more likely to identify individuals who were important to the success of the transaction, compared to low-retention companies (73% vs. 33%).
Those employees generally include senior leadership, and those companies that were most successful looping top managers in early had higher success rates. Nearly one-third disclosed that they asked senior leadership to sign retention agreements before the transaction’s initial signing, while 22% did so at the initial signing.
“Retention should start with executives,” said Scott Oberstaedt, executive compensation senior consultant, Towers Watson. “It’s critical for them to be completely on board and aligned with the goals and strategies of the acquisition. Their behavior is essential to the retention and engagement of employees.”
Money helps, too. Cash bonuses were the most common type of financial award used in retention agreements, and those that used cash bonuses held on to more employees–(80% for senior leadership, 89% for other employees) than low-retention firms (50% and 55%, respectively). Less successful were bonuses based on performance, as employees may feel that they don’t have enough control over their job performance during a transition, and may be prompted to find more stable pastures.