During mergers and acquisitions (M&A), people risks remain top of mind for both buyers and sellers all through the deal process. For buyers, this means retaining key management to ensure business continuity post close, noted Mercer's new report.
According to the Flight Risk in M&A: The Art and Science of Retaining Talent – 2017 Mercer Research Report, more than seven in 10 dealmakers (71%) worldwide use financial incentives for talent retention as part of their deal-making strategy and process.
That said, the research found that the location and industry of a transaction can greatly influence talent retention and assumptions.
Across Asia, there is a clear need for buyers to use financial incentives, particularly for deals 'outbound' from their home markets (94%).
For example, being acutely aware of their shortage of management skills outside the domestic market, Japanese buyers tend to retain local management in overseas acquisitions for at least one to three years. In fact, 89% of Japanese buyers reported offering retention programs - the highest single-market prevalence level reported.
Dhruv Mehra, M&A transaction services leader, Asia market for Mercer, noted: "Many Asian headquartered companies are first time acquirers of businesses in North America and Europe hence the high percentage (94%) of ‘outbound’ financial incentives being issued. In such transactions, retention of key management is most often the top priority to ensure business continuity post close."
However, the report cautions that this singular focus on senior management, while important, can obscure the long-term retention goal of identifying and developing future leaders.
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Thankfully, Mercer's research also noted an ongoing trend towards expanding talent retention programmes below the C-suite.
When asked about retention bonus eligibility outside of senior management and the C-suite, globally, 70% listed "other employees critical for integration" and 35% listed "other employees regardless of critical for integration" (up 150% from 2012).
"Buyers and sellers are getting more sophisticated and nuanced about who they offer retention to and how deeply and broadly to go into the acquired organisation," said Mercer’s Gregg Passin, senior partner and North America executive rewards practice leader. "It is also important to differentiate between short-term cash payouts and longer-term equity awards. Well-designed and implemented retention programs are more commonly being viewed as a type of 'insurance' to help better ensure that the maximum value is derived from a given transaction."
Phil Shirley, partner, multinational client group for Mercer, added: "We find that practices across Asia vary significantly, although there is a definite trend towards more sophisticated practices in retention plan design. This includes the differentiation of awards by the criticality of an individual and their role to the business, in addition to simply differentiating by their level within the organisation."
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