Retention bonuses aid in M&A activity

Is your business engaged in merger and acquisition activity? Results from a Mercer survey suggest that paying attention to your employee talent can directly impact the overall success of a deal.

Mercer’s survey examined the extent that two main tools for retaining critical talent—retention incentives and transaction bonuses—are used. According to the findings, retention incentives are widely used, while transaction bonuses that reward employees for the work undertaken during a transaction, are less common.

According to the survey, when companies adopt a retention program, executives critical to long-term success are eligible for retention incentives in 70% of the programs. However, only 53% of programs rewarded employees responsible for the short-term success of the integration.

The use of retention incentives is even higher for organizations conducting cross-border transactions—80% for executives critical to long-term success and 60% for employees for the short-term success of the integration.

Retention programs
Retention programs focus on retaining executive and senior management that are critical to the integration process. According to Mercer’s survey, 62% of deals completed by participating organizations over the past three years used retention programs.

Typically organizations determine whether a retention program is necessary early in process and then determine eligibility as the close of the deal approaches.

Retention incentives also vary from country to country. U.S. and Canadian organizations provide larger retention incentives than organizations in Europe and Asia Pacific, as a percentage of base pay.

“There is no one-size-fits-all retention incentive program,” said Gregg Passin, partner and Mercer’s U.S. leader for executive rewards consulting. “While many of the plans share certain characteristics, retention plan design varies based on deal size and complexity, type of deal, industry sector and whether the transaction is cross-border. When organizations develop their strategic retention bonus program, it’s critical to look beyond market benchmarks to examine their own unique needs.”

Transaction bonus programs
Transaction bonuses are typically paid to CEOs, executives and deal team members. According to the survey, organizations in 33% of deals provide transaction bonuses to deal team members, while slightly fewer (31%) provide them to the CEO. Other employees were less likely to receive a transaction bonus.

The survey found that CEOs and other executives in European and Asia Pacific organizations are more likely to receive transaction bonuses than their counterparts in the U.S. and Canada.

While transaction bonuses as a percentage of base salary for deal team members are fairly consistent among companies in the U.S. and Europe, companies in Europe provide much smaller transaction bonuses to CEOs and other executives than those in the U.S. Transaction bonuses are typically paid only if the deal closes.