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Employee Retention Through Mergers & Acquisitions

February 4, 2000
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When a company undergoes a critical transition such as a merger or acquisition, human elements often get lost in the shuffle. One of the most crucial of those overlooked issues is how to retain people who have been instrumental in the organization’s success.

As part of a study titled, "Lessons Learned from Mergers and Acquisitions," Right Management Consultants recently interviewed a number of executives who had dealt directly with the people side of such events. Their comments on employee retention point to six important principles that can make these transactions more successful:

  1. Decide how critical employee retention really is.
    There is no single formula for measuring the importance of employee retention. As one executive pointed out, "In a lot of ... talent-driven firms, what you’re buying is the people, and if you don’t pay attention ... you essentially will have spent a lot of money and gained absolutely nothing." In contrast, another acquisition veteran observed, "I’ve seen acquisitions where the bottom line is that we are acquiring patents, contracts, receivables, and other hard assets ... In some acquisitions, the people aspects are less pre-eminent."
  2. Look for talent in unexpected places.
    One survey respondent warned against focusing too much attention on top management personnel. "They may be key in some respects," he said, "but (there are) other employees that may actually be more important ... They may be the critical technologists, for example, who might represent the value of what you’re actually buying ... Worry about retaining them, maybe even more than the top management."
  3. Recognize that nothing is forever.
    "You’ve got to think about timelines," explained one executive. "It may be important to retain someone just for a very short period of time, to successfully make a transition, to do a handoff to existing managers in the acquiring firm. You have to get it down to a ‘onesies and twosies’ level, asking, ‘Why is it important to retain this person and for how long?’"
  4. Don’t be too desperate to retain any one person.
    This often occurs when a principal of an acquired company insists that the acquisition agreement guarantees his or her ability to continue calling the shots. If the new management tries to make changes later, the former owner may claim they are reneging on the contract. If such a problem seems possible down the road, you may be better off offering a six-month employment contract with a severance bonus at the end.
  5. Retention bonuses often backfire.
    "For a number of employees, the bonus offer kept them there until the end of the year," recalled one rueful executive. "Then they left—with the bonus." Even worse, many good employees who did not receive retention bonuses logically concluded they were not valued. "I think it maybe pushed some people to leave the organization because they didn’t get a bonus," he observed.
  6. Be open to creative approaches that earn trust.
    Instead of cash bonuses—or in addition to them—many companies demonstrate their commitment to people through tools such as ongoing career management. As one executive put it: "We used to say, ‘Don’t worry, trust us. When the time comes, you’ll get promoted.’ But the whole employee contract is changing and, ‘Trust me, we’ll take care of you’ isn’t good enough anymore."

Another executive recommends something called "creative redeployment."
Identify the top performers in the company—perhaps 10 percent of the workforce—and work to retain them, regardless of what happens to the positions they hold. If their job is eliminated, keep them on board and retrain them in a new position. Not only do you keep the best people, you also offer them new opportunities, responsibility and career growth—a "win-win" for both employer and employee.

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