Post-Merger Employee Compensation
Guidelines for Determining Stay Bonuses
Payout Terms and Conditions
Engagement to Departure Process
Major Events (Like an Acquisition)
Events That Trigger Disengagement
Four Fundamental Human Needs
7 Hidden Reasons Employees Leave
Synergy Plan Overview
- Executives have a synergy-based incentive target on top of the current annual incentive plan (AIP)
- Department heads will have the ability to allocate discretionary pools to other employees
- Eligibility: Management plus other employees involved in workstreams
- Synergy goals are set as an add-on to the current AIP
Here’s how the familiar story unfolds…
Company A acquires/merges with Company B. Part of the logic driving the deal is that, in combining the two firms, headcount can be reduced. Accounting runs the numbers and promises annual payroll savings of, let’s say, $20 million.
But, of course, you can’t afford to let all those people go immediately. Some of them will be needed to help do the heavy lifting during the integration process. A few of the folks have critical skills…or they possess key information that has to be transferred to other employees who’ll remain. So, in order to keep the integration from going off the rails, you offer a big chunk of money to select people, the bonus to be paid only if they help out for a specified period of time.
Sounds practical. But research shows that stay bonuses can produce unintended consequences …
- Acquired Co Employees Impacted In 3 Ways
- Required Co Employee Selection and Placement
- Engaging with Acquired Co Employees Pre-Close
- Rules of Engagement
- Selection Process for Functions Being Scaled Back
- Step 1: Workforce Planning Results in Acquirer Talent Needs
- Step 1: (Cont.) Workforce Planning Identifies Acquired Co Positions Being Affected
- Step 2: Candidate Pooling Identifies the Talent to Be Assessed
- Step 3: Selection Will Be Driven by Assessment of Experience and Performance
- Step 4: Employees Not Selected Will Be Considered for In-Placement and Out -Placement
- Guidelines for Selection
- Service Eligibility
- In-Placement Services
When an acquisition will be integrated and its current corporate identity reshaped, the parent (or surviving) firm has an obligation to bring acquired employees into the fold. This calls for comprehensive, sustained onboarding. People in the acquired firm need to develop a feeling of citizenship in the new corporate structure. They need guidance on what to expect and how to fit in. They need help in making social connections that can provide a new sense of belonging.
Yes, it takes time and money, but the return on investment is huge. Acquirers that skimp in their onboarding efforts pay a far heavier price in the long run as they wrestle with integration problems which easily could have been prevented.
Four Key Benefits of Onboarding
A well-crafted onboarding program can be your best counter-offensive against the chronic and troublesome merger dynamics of ambiguity, a weakened trust level, and self-preservation …
Over 70 Staffing and Retention Activities Grouped into these Categories:
- Finalize Organizational Structure for All Functions
- Deploy a Staffing Process to Assess, Select, and Announce All Levels of the Organization below the Management Team
- Management Team Design Tools to Retain Key Talent Prior to Close and Throughout the Transition Period
- Develop a Process for Managing Reductions in Force and Administering Separation Packages and Outplacement Services
- Design an Issue-Free Day 1 From the Employee Perspective
- Provide the Communication Team with Guidance on Messages Related to Retention, Severance and Staffing
The top management in the acquirer might argue that it is best to allow some time to get to know the abilities and potentials of the management team in the target organization. But that assumes that those people will hang around long enough for such a familiarization process to occur. Often, they do not.
Mergers always require you to make sacrifices. It’s a time of tradeoffs. Compromises. Less than perfect solutions. So far as the people issues are concerned, it’s like watching a card game—some win, some lose, some break even.
You can care deeply—for everybody—but you can’t keep from damaging some careers.
Deep inside, managers know this is the case. Obviously, everybody can’t come out on top. But when it comes down to deciding how the two work forces will actually be integrated, the people calling the shots usually feel compelled to make a show of fairness. Instinctively, they want to come across as acting equitably, to be seen as even-handed in the way they assign people to the various positions.
This sort of behavior is fully understandable. But as it turns out, it’s not particularly good management. In fact, if being “fair” to current employees is a top priority, merging is probably a …
Some 200 years ago, Jane Austen–one of Britain’s best-loved authors—wrote a famous novel about marrying. And money. Deep down that’s actually what mergers are about, too, so I thought to myself, “Maybe her classic, Pride and Prejudice, has parallels for merger integration.”
After all, “corporate marriage” is the most common metaphor used when people talk about combining two companies. And as for the part about money, well, M&A is always based on a financial proposition.
Since Austen’s story about 18th century England focuses on social class, let’s look at merger integration from that angle. In the hierarchy of power and status, the Board of Directors is the uppermost class…the top rung of the corporate social ladder…the highest level of governance.
So how do pride and prejudice affect the integration process in boardroom society ..
As a hiring manager, you may have participated in the interview process when hiring externally at ACQUIRER or TARGET. The staffing of NEWCO will be somewhat different from what you’ve experienced previously. You will be asked to interview ACQUIRER and TARGET employees to gain a better sense of their overall skill set and competencies. During this process you need to keep an open mind about where they might be fits within your division and the new company. This will be an emotional time for people who are being interviewed; therefore, please be conscious of the fact that many of the candidates will be nervous since there is uncertainty about their future job status.
Unfortunately, there may not be a position in ACQUIRER for some of the candidates you interview. Let the candidate know that someone will get back to them as soon as a decision has been made. The interview process will move much faster than our typical external interview process. No job offers or eliminations will occur until after the merger has been completed ….
- Functional leaders and/or HR will work with Communications to publish an informational article in the integration newsletter. Broad employee announcements will only be made after all affected employees have been personally communicated with.
- Employee severances will be handled within the functions, in conjunction with HR. No formal communication will be issued regarding individual severances. Exceptions will be handled on a case-by-case basis.
In a merger, acquisition, or takeover, reductions may be required immediately after the announcement of the transaction, or they may be required after work is transitioned from a department. In either case, you should prepare for the following necessary actions:
This requires an evaluation of major tasks performed within a department and the labor hours required to accomplish those tasks. The due diligence review of all departments should have provided historical data from the organization to facilitate the staffing decisions, whether those are transaction numbers, dollar volumes, number of accounts, number of employees, or other quantitative factors. In this process, it is important to consider the tasks, not the individuals assigned to the tasks. The end result should produce the staffing projections for the combined organization.
When calculating staffing projections, it may be helpful to use required work standards and management ratios ...
Job status notification is a difficult challenge that warrants careful planning and handling. Avoid the following typical mistakes when communicating job status information following the close of the deal:
Mistake # 1: Not being prepared.
Antidote: Get ready.
- Know specifically what your role and responsibilities are regarding this process.
- Thoroughly understand the three different categories of employees (continuing, transitional, and separated) and review the process for dealing with each scenario.
Mistake # 2: Not acting calm and relaxed …
First, the new owner should not be tempted to “go with the familiar person.” This tactic does not sufficiently minimize the risks involved.
Second, there is real danger in deciding to “Do nothing and wait for the dust to settle.” It may, on the surface, appear that in employing this approach one is exercising sage restraint. But some good people may choose to leave while the merger is still stirring up dust. Others will have been waffling along with a wait-and-see attitude. And some will have done damage that could have been prevented by a more timely termination or reassignment. Undoubtedly, the organization will have lost some momentum unnecessarily while also wasting an excellent opportunity to motivate people.
Third, sweeping personnel changes that follow closely on the heels of an acquisition, and which proceed without any systematic appraisal of those people being terminated, come at too dear a cost.
Although the integration will bring some job eliminations and job changes, the majority of roles within the combined organization will not be impacted. A necessary part of any integration is defining the new organization and opportunities as well as eliminating duplicate roles. When this occurs, we will communicate with impacted employees their specific options.
Our goal is to share the majority of organizational decisions within 90 days after Close ...
This is the most traditional approach, and it is good so far as it goes. Certainly, it does pay respect to salient—even critical—data. But good numbers can mask weak talent. The acquired company may for all practical purposes have been a one-man show. There may be no backup. That in itself is bad enough, but it becomes even more critical if the front man happens to depart in the aftermath of the acquisition.
There are too many external biasing factors that deserve consideration for the acquirer to simply assume that incumbents truly do deserve full credit for the current set of numbers. A quantitative analysis can be misleading in a variety of ways.
A Product of Good Times
A benevolent economy may deserve most of the credit for the acquired firm’s good financial performance. So the question that deserves thought is whether there is much proof that …
Frankly, almost all of us are amateurs at job hunting. If we find ourselves needing to make a career move, we may pick up a book about job search and start cramming. We might check out a couple of websites for advice on resumes or how to interview.
Of course, most people just feel their way along until they land a job offer. And they make a lot of rookie mistakes. It’s not that job hunting is so complex. It’s just that we don’t do it on a regular basis.
Actually, searching for a new job is a game of fundamentals. We’re not likely to score with some trick play, but rather by mastering the basic “blocking and tackling.”
This article boils down the latest job-related research and gives you the know-how you need. No more “winging it.” No more wasted effort on a time-consuming, trial-and-error approach. Here’s the hard-core truth about job-hunting practices that work best.
1. Evaluate and, if necessary, refine the business strategy. Strategy should drive structure. Strategy should provide fact-based, clear, compelling, boundary-setting answers to these questions:
- What products/services will we offer and not offer?
- Which products/services will we emphasize?
- What markets will we and will we not serve?
- Which markets will we emphasize?
- What competitive advantage(s) will cause us to be successful?
- How will we measure our strategic performance?
2. Identify the business processes that are most critical to the successful implementation of the strategy. Strategy and business processes should be the two primary drivers of …
Employee Retention in M&A
Discuss how all retention, severance, outplacement, transition and synergy-linked incentives will support the goal of engaging and motivating people to perform and behave appropriately through the transition period
- Meeting Objectives
- Timing of Announcement of Job Status to All Employees
- Timing Dependencies
- Timing of Announcement of Tier 1 Organization Design and Staffing Decisions
- Pre-Close Retention Incentives Acquirer
- Severance for Acquirer Employees Post -Close ...
During mergers, people reexamine how the organization being created fits with their personal goals and ideals. As leaders, it is important to identify those individuals most critical to the success of the merger and “re-recruit” them to stay. This document is intended to give leaders a framework for organizing their thoughts on re-recruitment. The key is not to focus only on those viewed as a risk for leaving, but also on those whose departure would have a significant negative impact on the organization.
The trust level drops dramatically when major changes are made in an acquired company post-sale. Morale heads south. Loyalty, the tie that binds, comes unraveled. Job stress hits new highs. The overall effect can be punishing, like a hard fist slammed into the stomach of the organization. And it can knock the wind out of work groups..
As a manager, you’d better take these emotional matters seriously. Strong feelings strongly influence people’s behavior. What all this means is that your job gets a heck of a lot harder. It does not mean that you should make attitudinal issues such as morale, trust, and employee loyalty your top priorities. You shouldn’t.For now you should focus on problems, not symptoms. Tangibles rather than intangibles. Hard results instead of soft issues. You could waste a lot of precious time and energy chasing the wrong rainbows ...
“AMA study found that 25% of top performers leave within 90 days of major change event”
I. Reasons Why Talent Leaves:
- Targeted by recruiters/competition
- Net/net perceive they are “worse off”
- Perception of loss of sponsor/access to key decision makers
- Changes to reporting relationships/key job responsibilities
- Loss of compensation/benefits
- Perception job will not meet career goals
II. Talent Assessment: ...
This Retention Bonus Agreement (the "Agreement") is made and entered into effective as of October 1, 2030 (the 'Effective Date"), by and between John Doe (the "Employee") and ABC, Inc. (the "Company").
A. The Company has announced the execution of an Agreement and Plan of Merger pursuant to which the Company may be acquired by another company. The Board of Directors of the Company (the "Board") recognizes that such announcement can be a distraction to the Employee and can cause the Employee to consider alternative employment opportunities. The Board has determined that it is in the best interests of the Company and its stockholders ...
Assessment of Turnover and Discussion of Retention Needs
- Recent turnover?
- Status of Critical Operational Talent list?
- When will Critical Operational Talent discussions begin?
Status update on memo regarding org. design and synergies
- Start/end date to submit final synergy templates to the IMO?
- Finance Team’s/ Staffing & Retention Team’s involvement in the org. design/synergy refinement process?
- Process/instructions for org. design?
- How many tiers in entire organization?
- Review and approval of org. design and final synergy templates?
- All components drafted? Content complete and stable?
- Formatted for ease of use?
- Approved by legal of both companies? (Outside legal approval required?)
- Produced? o Approved by Core Team? o Distributed to MT?
- How/when will the Staffing Toolkit be distributed to hiring managers below Tier 2?
Status Update on Tier 2 Interviews and Selection ...
One of the most likely bailout points is in the top management ranks. Key executives who fought the merger/acquisition often feel that their relationship with the parent company has been strained beyond repair and that they have too many fences to mend. Feeling that their career is on shaky ground, and without any quick and convincing messages to the contrary from top management in the parent company, they bolt.
The acquirer is frequently taken aback by this turn of events. Parent company executives may believe the relationship is developing quite well and think they have made it plain that they bear no residual ill will. In fact, parent company management sometimes assumes it has done more than is necessary to prevent key managers in the target firm from jumping ship. But assumptions can be extremely costly when dealing with acquisitions, particularly when they lead to vacancies in some of the most critical positions. Another source of bailouts would be the disgruntled leaders who see themselves being layered away from the top of the power structure …
One unfortunate reality of mergers and acquisitions is that good people sometimes leave…on both sides of the deal. Whether it’s a trickle or a flood, all managers on both sides need to pay attention. Joining forces is difficult enough, even without losing talent. So imagine how risky and problematic merging becomes without your best people to help.
This problem is compounded because your best talent often leaves first. The reason is simple…they have more opportunities. Headhunters are going to target them first and go after them aggressively. And even people who wouldn’t normally take a recruiter’s call tend to be more receptive during the uncertainty of integration. Mergers send everybody in both organizations a wake-up call.
Smart managers are there re-recruiting their crucial resources before competitors capture their attention. Some managers have never been trained to re-recruit. They simply lack the skills to be effective. Other managers tend to avoid conversations …
Organizations have a hard enough time hanging on to good talent these days. Careers have become more a collection of assignments than a collection of seniority pins and gold watches. Work has come to be seen as more an activity than a place. Because of this, the feeling of company belonging and loyalty is a rarer experience than when 20-year stints at the patriarchal corporation were the norm.
Introduce a destabilizing event like a merger or acquisition into the picture, and the precarious ties holding employees in their current jobs begin to loosen even further. The nature of today’s deals makes this erosion of loyalty still more of an issue. So many of today’s mergers and acquisitions are not really based on the idea of purchasing hard assets such as plants and equipment. Due to the growth of the service industry, the de-emphasis of leveraged buyouts, and the increase in the value of knowledge, a large percentage of today’s purchases and consolidations represent a pursuit of “soft assets.” These soft assets represent the knowledge of the workforce in the target company—for example, the value of patents, relationships with …
How to Re-Engage and Re-Recruit Key Players in M&A Integration
- Re-engage and re-recruit yourself first!
- Conduct “Stay” conversations
- Engage multiple methods of 2-way communication
- Give key talent meaningful work to do …
Self-preservation becomes a major concern.
Every employee looks at a merger from the standpoint of how he or she personally will be affected. There are heavy-duty questions in each person’s mind, such as:
- Will I get to keep my job?
- How will my pay and benefits be affected?
- Will this affect my opportunities for advancement?
- Will I have a new boss?
- What will be expected of me now?
Until important personal career issues like these have been resolved satisfactorily, employees are too preoccupied with their own situations to focus effectively on their work. Company interests take a back seat to personal interests. Employees worry, gossip, and trade rumors rather than concentrate on their jobs …
Traditionally the merger due diligence process has focused on legal and financial issues—e.g., contractual matters, litigation points, economic and fiscal considerations, etc. Obviously that’s an important exercise.
But when mergers fail, as they too frequently do, the odds are it reflects a sloppy job of soft due diligence.
There is powerful logic in favor of systematically assessing the competencies of key players in the new organization. You should not automatically assume that people who have been successful in a pre-merger environment will perform with the same effectiveness under a new regime and in a different corporate setup. People’s strengths often become weaknesses during a merger transition period ...
Leadership Qualities Rated
Understands overall business goals; maintains or increases financial performance and market share through the application of sound business principles and knowledge.
Demonstrates the ability to grow our business in both current customers and the marketplace; knows and understands customer needs and anticipates opportunities.
Works across internal, external and geographic boundaries to deliver customer value; partners with individuals at all levels and in all functions to ensure that organizational objectives are met ...
9-page list of data to gather and assess HR
Identify potential synergies/opportunities in these categories:
- Management Team
- Compensation and Benefits
- Recruiting ...
Results from Assessment of COO (name of executive and details have been changed).