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M&A transactions: Five tips for retaining and engaging executives and key employees

Whether you’re selling your business, acquiring a business, or merging with another company, retaining and engaging executives and other employees is a critical strategic move for a successful transaction. Here are five tips for motivating your key people, encouraging a high level of retention and engagement, and preserving the value of your business.

1. Communicate. Communicate. Communicate. The period leading up to a transaction’s closing is a time of uncertainty and may create a great deal of anxiety. To ease concerns and maintain employee longevity, it’s critical to communicate your plans as early as possible — to articulate the vision and direction of the post-deal organization, and inform employees of their roles during and after the transition.

2. Review existing financial incentives. Financial incentives are critical to reduce employees’ fears and motivate them to continue their role with the organization. Existing incentives may include severance plans or employment agreements that provide executives and other key employees
with enhanced benefits if a change in control results in a separation from employment. Additional elements such as “stay” bonuses and deferred incentives are also powerful retention tools.

3. Offer “stay” bonuses and other benefits. Enhanced severance benefits are like insurance policies — they protect employees in the event they’re terminated after the deal closes. While severance makes it less risky to remain with the company, it does little to discourage employees from pursuing other opportunities. Stay bonuses range from 25 to 100 percent or more of annual compensation with the highest percentages going to those critical to the long-term success of the business. These bonuses include cash payments — or, less frequently, equity awards — to employees who remain on the job through closing or for a specified period following closing. Bonuses may also be tied to the achievement of performance of integration targets to motivate employees to continue their contributions to the company’s value. Additional considerations such as extension of health benefits, life insurance or other similar offerings may provide an additional layer of confidence and engagement in the transition period.

4. Consider non-financial incentives. Non-financial incentives can be as effective as financial ones in creating engaged, committed employees. For example, you might include employees in aspects of the acquisition, including leading interesting projects, participating in trainings and
other career development programs.

5. Don’t exclude buyers. Although these incentives are usually associated with sellers, buyers also have an interest in retaining key talent along with their existing employees who may also fear role elimination.

Know your employees.

The first step in designing an incentive program is to know your employees and your business. Every company should structure incentives based on their unique needs and corporate culture. By understanding your staff and leadership’s roles in the organization, supporting their career goals, and addressing other areas of interest, incentive packages may be provided that are commensurate with their expected value and will likely motivate your employees to stay engaged and on board for the long haul.

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