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Playing for keeps: Employee retention in M&A – how to get it right

The M&A process is a bumpy experience for employees. How can leadership create an engaging vision of the future organisation, while knowing that for most, change is perceived as a threat?

During M&A, voluntary attrition increases by over 30%, and while a degree of natural attrition is inevitable, when unmanaged, it results in lost productivity and depleted intellectual capital.1 Financial incentives certainly help but only go so far, and while it can afford the organisation time to reach key milestones (Day 1, Day 100), overlooking more affordable retention levers will sap long term deal value.

The most effective M&A retention strategies are much more holistic. They secure trust and belief in the shared future and give clear opportunities for employees to carve out and thus invest in their experience in the new organisation – treating employees like customers, to improve their experience.

The holistic M&A employee retention strategy

Despite being less costly, fewer than half of organisations surveyed by Deloitte, use non-financial retention strategies alongside financial measures.2 There are a few key considerations for people leaders who are looking to manage attrition before, during and after an M&A transaction.

1. Acknowledge the employee experience

While a transaction is inherently challenging for employees given the number of unknowns, a first step should be to try to understand the types of anxieties employees will be experiencing. This will allow the organisation to determine how best to provide reassurance, at a time when not all questions can be answered.

Put people at the centre of integration planning, by considering opportunities for transformation that meet the needs of employees, as well as those of clients, shareholders and investors. For instance, when rolling out a technology transformation via a Transition Service Agreement (TSA) exit, in addition to delivering on-time and on-budget, consider how it will help employees – by using the opportunity to make the technology they interact with day-to-day easier to use. Rather than focusing purely on cost and speed, employees should be involved in the design process. Take the opportunity to transform the employee experience to strengthen commitment.

2. Make opportunities for employees to step up and shape the future

The rules of engagement between employers and their employees have evolved. Employees now expect to co-create the organisation they are a part of. In a deal context, this may seem impossible, given that transparency is restricted, and statements of certainty should be used with refrain, but doors should still be opened for employees to meaningfully contribute to the change.

During a transaction employees can retreat, given perceived high tensions, demands on their time, or a desire to absent themselves from potential performance management discussions. It’s important that employers lean in to increase engagement and make opportunities for employees to step up and shape the future state of their organisation.

To engage key employees to invest in their future, a range of non-financial measures should be considered:

  • Provide flexible careers paths with roles tailored to employees’ individual objectives, or the opportunity for international assignments.
  • Opportunities for special exposure and visibility with senior leadership, including involving employees in the deal, e.g. special rotation roles as part of BAU, or participation in task forces/projects to help the integration effort.
  • Provision of Learning and Development (L&D) opportunities to support the organisation, or mentoring/coaching to develop leadership skills.

3. Communicating developments: Avoid the void

When an employer is perceived to exercise excessive control and scrutiny during a transaction, employees can display so-called quiet quitting. So, it’s critical to ensure that helpful and consistent messaging is reflected across all levels of the organisation, rather than just top-down. Some employees will more willingly become involved in the transaction, but it is important that the organisation takes a proactive approach to involving a cross-section of employees, of all levels, in building faith in the future.

While Town Halls will always play a part in a transaction, to cut through noise in a landscape of competing demands, organisations should review different channels of communication.

  • Identify granular ‘moments that matter’: the first time meeting a new manager, or changing laptops, by understanding the employee journey for each team, can make a small but invaluable contribution to creating a positive experience.
  • Understand where influence lies and empower Change Champions to help share specific and focused communications.

For all the above approaches to long-term holistic retention to be available, financial incentives must also be deployed to retain critical employees, to ensure the delivery of deal objectives.

4. Financial incentives: Right package, right people

During transactions, fewer than 5% of those handed a financial retention award leave before they have vested, providing critical stability to ensure transaction milestones are reached.3

There are several points to consider when finalising your approach to financial retention:

  • Consider the population to whom financial incentives should be offered and what you are seeking to achieve through using them (e.g. performance/retention).
  • Beware of tying the reward to a specific date rather than an event, e.g. the anticipated Day 1 date which may slip, rather than when the event itself falls.
  • Consider the objective of the reward, for instance contributing to specific milestones, knowledge transfer, or achieving a synergy target, rather than solely tying it to employment.
  • Buyers might want to consider putting in place their own scheme after Day 1, rather than believing the seller ‘has it covered’, to ensure the package covers specific post-close objectives.
  • For longer periods, give thought to how best to stagger payment tranches to maximise retention and focus on delivering on the wider strategy.

When systems, policies, processes and even locations are in flux, people leaders can turn a seemingly bumpy transaction process into an opportunity to engage employees in co-creating an organisation they want to be a part of.

Read more about Employee Experience in M&A here.



1,2,3 Deloitte M&A Retention Survey May 2022