Human capital is a critical component of any merger or
acquisition. High profit margins and synergistic gains cannot be
realized without key talent who are able to motivate employees to
achieve high levels of performance. Although there is no simple
solution to retaining top performers, retention strategies should
be adopted in any merger or acquisition. The most common retention
award offered to executives and employees is a cash bonus,
calculated as a percentage of base salary. Expressed relative to
purchase price, retention budgets are quite minimal and are usually
borne by the purchaser.
The Global M&A Retention Study conducted by Towers
Watson (the Study) found that 88% of
high-retention companies and only 67% of low-retention companies
rated a transaction as successful with respect to strategic
objectives. A 21% difference in perceived success is significant
considering most companies allocate less than 2% of the total
purchase price to retention budgets.
There are a number of things that high-retention companies do
differently than low-retention companies, including:
identifying employees who are eligible for retention based on
their ability to influence the success of the deal;
speaking to senior executives to seek out information regarding
which employees should be targeted for retention;
giving management discretion in the retention-agreement
including cash bonuses in retention agreements;
not simply relying on data provided by the target company's
HR database in the retention selection process; and
offering executives a retention plan that is approximately 60%
of base salary.
According to the Study, 68% of respondents stated that over 80%
of employees will stay with the organization for the full retention
period once they have signed a retention agreement. However, only
43% of respondents claimed they were able to maintain that same
level of retention just one year later. These statistics suggest
that retention agreements are a valuable, yet time-limited,
solution to a critical issue. Companies operating in a competitive
landscape risk losing their top talent if employees see the
opportunity cost of remaining with their current employer to be too
Retention agreements are an important aspect of a transaction;
however, long term sustainability requires executives to consider
how companies will continue to retain key talent after these
agreements expire. The Towers Watson Global Workforce Study, which
surveyed more than 32,000 employees across 31 markets, identified
the top drivers of employee retention as personal outreach by
managers and executives, learning and development sessions,
opportunities for career advancement, transparent reward systems
valuing top performers and clear and honest communication from
senior executives. It is these factors that complete the retention
equation; good people equals better results.
Norton Rose Fulbright Canada LLP
Norton Rose Fulbright is a global legal practice. We provide
the world's pre-eminent corporations and financial institutions
with a full business law service. We have more than 3800 lawyers
based in over 50 cities across Europe, the United States, Canada,
Latin America, Asia, Australia, Africa, the Middle East and Central
Recognized for our industry focus, we are strong across all
the key industry sectors: financial institutions; energy;
infrastructure, mining and commodities; transport; technology and
innovation; and life sciences and healthcare.
Wherever we are, we operate in accordance with our global
business principles of quality, unity and integrity. We aim to
provide the highest possible standard of legal service in each of
our offices and to maintain that level of quality at every point of
Norton Rose Fulbright LLP, Norton Rose Fulbright Australia,
Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South
Africa (incorporated as Deneys Reitz Inc) and Fulbright &
Jaworski LLP, each of which is a separate legal entity, are members
('the Norton Rose Fulbright members') of Norton Rose
Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein
helps coordinate the activities of the Norton Rose Fulbright
members but does not itself provide legal services to
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should be
sought about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
While most are well aware that the sale of a business is generally a complex process, even sophisticated business owners are surprised by just how much cost and effort is required to complete the sale.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).