A reduction in force due to an acquisition creates a climate of heightened concern. Even those who are unscathed remain uneasy about the eventual ramifications and wait for the next shoe to fall.
After the downsizing is complete, you can safely assume that some employees still feel threatened and disempowered. These feelings can demoralize them and interfere with the success of your integration. How can you motivate the remaining people to stick with the company and make the merger work if you don’t have extra cash to incent them?
Psychological paychecks.
The intangible rewards you have to offer are limitless. Words of encouragement, compliments, empathy and understanding, a note of appreciation. Stopping to share a cup of coffee or taking the employee to lunch. Bigger titles or special assignments. More decision-making authority. A sincere thank you. Asking about the family, celebrating small victories, soliciting opinions and suggestions. Listening . . . really listening. A mere smile or calling the person by name. A warm handshake or pat on the back. Taking the person into your confidence. Even asking the employee for help—“needing” the person—is gratifying because it validates one’s worth.
Caring, of course, takes time. It also requires you to pay attention to what’s going on with your people. But caring makes a remarkable contribution to team morale. Psychological paychecks have an intrinsic value that hard currency can never touch.
Create a supportive work environment—nurture—and watch it bring out the best in people. Show approval, and see how it warms the group. When you affirm, you empower. People feel safer, valued, and more optimistic. The trust level notches up.
Employees show more creativity and engage their talents more fully. Psychological paychecks also build loyalty and commitment, buy the support of your people, and facilitate “bonding.”
Most managers don’t realize the importance that their acceptance and approval carry with subordinates. As a result, they waste this most precious resource through sheer neglect—like a bank account they never touch, money they never spend, that could be freely used to motivate and improve employees’ quality of work life.
When it comes to handing out psychological paychecks, you should spend extravagantly. Your generosity will be richly rewarded. Make every team member feel special, and you’ll end up with a very special team.
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Acquiring and merging a company is like hiring en masse. You spend a ton of money on the deal, and your payroll immediately explodes because of this huge new batch of employees.
But these people didn’t come looking for a job with your firm.
You need a well-crafted onboarding program to protect your investment. However, most acquirer’s assimilation efforts are too late, too little, and too poorly executed. This is a major failure in risk management.
A benchmark report on best practices found that 86 percent of some 800 organizations surveyed globally agree that it takes as much as six months for new employees to make a solid decision to stay. But 61 percent of those same organizations either (a) provide no formal onboarding program or (b) end their program within just one month.
That’s just asking for trouble. Acquired personnel can’t blend in culturally, develop a sense of belonging, and get comfortable with new work practices in a month or less.
Of course, practically all acquirers perform at least a few basic onboarding tasks. But often the acquired workforce receives little beyond a Day 1 data dump and a pile of paperwork to fill out.
The best M&A “change management program” you can implement is an extended, broad-gauged onboarding effort. Design it to transition and assimilate people into meaningful citizenship, cultural alignment, and operating effectiveness in the new organizational scheme of things. There are three key aspects to such strategic onboarding:
- Administrative tasks are the quickest, easiest, and most common aspects. They include basics such as personnel paperwork and equipping people with the gear needed to do their jobs.
- Managerial tasks are harder plus more behavioral and ambiguous—e.g., defining newcomers' work roles and performance expectations, familiarization with company processes/practices, and helping people get up to speed on the job.
- Finally, and by far the most complex, are socialization and cultural alignment tasks. Socialization tactics might include orientation sessions, a buddy system, mentoring, mixers, or training on organizational change, all shaped to help people merge into new work groups. People also should be given a cultural sense of the parent firm’s history, values, norms, and operating style.
Map out the overall design and general timetable for your strategic onboarding program well in advance. The following four-stage model depicts the focus of work along a typical integration pathway.
A powerful onboarding program accelerates the integration process and protects the value of your deal. The payoff shows up in retention of talent, rapid engagement, increased productivity, and cultural alignment.
That’s superb risk management.
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Leadership Qualities Rated
Business Acumen
Understands overall business goals; maintains or increases financial performance and market share through the application of sound business principles and knowledge.
Client Development/Management
Demonstrates the ability to grow our business in both current customers and the marketplace; knows and understands customer needs and anticipates opportunities.
Collaborative Relationships
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.
Decision Making
Demonstrates ability to use sound judgement balanced with creative solutions in a timely, systematic and resourceful way.
Develops Workforce Competencies to Support Company Strategy
Strengthens the competitive, core competencies of the organization by continually building those skills and areas of expertise in the workforce--through training, assignments, mentoring, job rotation--using all available means of development.
Emotional Aptitude
Has the perceptive and intuitive sensitivity necessary to successfully deal with diverse people and situations.
Executive-Level Presentation Skills
Demonstrates the ability to develop relationships at the senior levels of customer organizations and persuade/influence decisions of individuals at those levels.
High-Performance Climate Creator
Ability to hire, lead, direct, and motivate a team; sets high standards, provides tools and coaching for achievement, then rewards and recognizes high performers.
Inspires Shared Purpose
Able to establish with a team the group's mission and goals then accomplish those goals through teamwork and across functional boundaries. Creates high-performance climate.
Integrity and Values
Behaviors are consistent with organizational values; gains respect from employees, peers and customers through keeping commitments and treating others with respect.
Intellectual Aptitude
Has the cognitive abilities (brainpower) to quickly grasp the depth and breadth of a situation and address appropriately.
P&L Management
Constantly monitors financial performance and creates actions plans to improve financial performance. Understand all elements of the P&L. Accurately budgets and forecasts.
Problem-Solving
Recognizes problems and opportunities; considers all sides of a situation and works to appropriately identify solutions.
Results Oriented
Gets the job done in a timely manner; meets objectives without sacrificing relationships or integrity. Meets or exceeds deadlines.
Seizes Opportunities
Demonstrates initiative and innovation; takes calculated risks. Understands and anticipates customer needs to leverage our competitive advantage.
Thinks Strategically
Sets goals and makes decisions based on overall business strategies. Does not engage in "silo" thinking or activity, but rather manages to the "big picture".
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
Agreement
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").
RECITALS
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 to assure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility or occurrence of a Change of Control (as defined below) of the Company.
B. The Board believes that it is in the best interests of the Company and its stockholders to provide the Employee with an incentive to continue his employment and to motivate the Employee to maximize the value of the Company upon a Change of Control for the benefit of its stockholders ...
Agenda
- Approach
- 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
- Pre-Notification
Approach
- If group is kept intact in same location approach is Retention focus (as needed)
- If group is scaled back in same location approach is Performance-based assessment and selection process for functions scaled back
- If group is scaled back in new location is Identification of willingness to relocate, Attraction of top talent and Performance-based assessment and selection process (as needed)
- If group is kept intact in new location approach is Attraction of as much talent as possible to stay with Acquirer
- If group is Shut down approach is Attraction of top talent to other jobs in Acquirer
Acquired Co. Employees Impacted in 3 Ways
Functional and site decisions
-
Keep: Job Continues (approx. 80%)
- Employees automatically transitioned
- Begin on-boarding at close
-
Scale back: Function/Site Reduced
- Performance-based assessment and selection process for “affected” employees
-
Close: Site Shut Down
- In-placement/out-placement process
Step 1: Workforce Planning Identifies Acquired Co. Positions Being “Affected”
An “affected” position is a job in which:
- The number of current positions is reduced
- The position is moved to a new location
- The position changes more than 20% (degree of job change “ determined using a number of criteria, including an externally conducted job evaluation, if necessary.)
- The position is eliminated altogether
Only incumbents in “affected” positions will undergo the selection process
- If a position is not “affected”, the employee will be automatically transitioned to Acquirer
- If the position is eliminated, the employee proceeds automatically to in-placement/out-placement ...
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A 10-slide presentation of an M&A employee retention bonus program after an acquisition that cover retention amounts, payout terms, and retention period.
Agenda
Guidelines for Determining Retention Bonuses
Amounts
Administration
Retention
Payout Terms and Conditions
Summary
Talent Loss
Engagement to Departure Process
Major Events (Like an Acquisition)
Events That Trigger Disengagement
Four Fundamental Human Needs
7 Hidden Reasons Employees Leave
Guidelines for Determining Retention Bonuses
The following factors must be considered when assigning awards (retention bonuses):
- Criticality of the skills or knowledge provided by the Employee as it relates to achieving closing or integration;
- Increased risk of the employee leaving Acquirer as a result of the merger;
- Employee’s perceived level of threat to ongoing employment before or after closing;
- Criticality of the employee to the ongoing business; and
- Internal equity between similarly situated participants.
Administration
Authority and Process:
-
Each Management Team member will receive a detailed list of employees, title, performance history, current base pay, and other relevant compensation data. Management Team members must supply the following to request participation:
- Proposed Retention Period
- Award percentage (based on established guidelines);
- Timing of payout(s)
- Brief justification of the award
- All Retention recommendations will be reviewed by Organizational Development to ensure consistent application of the guidelines and to monitor overall program expense.
- The final list of recommendations will be submitted to the Executive Committee for review and approval. Exceptions to the guidelines will be flagged.
Funding:
- All awards and benefits are subject to the aggregate available funds of the Company.
Retention Period
- The Retention Period from here forward refers to the pre-defined period of time that the Employee is being asked to remain in order to qualify for a payout under this Program. The Retention Period will be based on business need and time required to substantially complete the integration.
- A Retention Period may be extended by Acquirer with sufficient notice to the Employee. Any extension of the Retention Period beyond the initially approved term requires written documentation and will be subject to Executive Committee approval...
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Agenda
- 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
- Post -Close Outplacement Services
- Transition Incentives
- Post -Close Incentives Linked to Synergies
- Organization Design ,Staffing, and Retention Interdependencies
- Interview Process
- Transition Agreements
- Severance
- Reductions in Force
- Staffing Q&A
- Staffing Deliverables
Meeting Objectives
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
- A. Retention incentives to retain crucial Acquiree employees long-term (currently in place)
- B. Severance incentives for Acquiree employees who will lose their jobs as a result of the deal (announced)
- C. Pre-close retention incentives for Acquirer employees at risk because their future employment is ambiguous
- D. Severance incentives for Acquirer employees who will lose their jobs as a result of the deal (match Acquiree severance)
- E. Post-Close outplacement services for any employee (Acquirer or Acquiree) whose job is terminated as a result of the deal
- F. Transition incentives for select employees who are identified as critical to some time-specific or milestone-complete transitional initiatives/knowledge transfers, but not needed permanently
- G. Post-Close incentives linked to synergy capture (and how these incentives factor into the overall business incentives for the combined business)
Agree on a date when we can provide answers to all employees in the combined organization on their employment status (i.e., Close plus 30, 60, 90 days)
- Group One: People who have jobs with the combined organization
- Group Two: People who do not have jobs with the combined organization
- Group Three: People who are needed temporarily through a specified transition period, but not permanently
Work backwards from that date to determine when Tier 1 org. design and staffing decisions must be made to support that decision, respecting the fact that certain hurdles must be cleared (i.e., shareholder vote, regulatory approval, or Close)
Timing
Agree on a date when we can provide answers to all employees in the combined organization on their employment status (i.e., Close plus 30, 60, 90 days)
- Group One: People who have jobs with the combined organization
- Group Two: People who do not have jobs with the combined organization
- Group Three: People who are needed temporarily through a specified transition period, but not permanently
Work backwards from that date to determine when Tier 1 org. design and staffing decisions must be made to support that decision, respecting the fact that certain hurdles must be cleared (i.e., shareholder vote, regulatory approval, or Close) ...
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Content
Minimizing Employee Losses
People Integration Strategy
Timing of Retention Phases
- Phase 1
- Phase 2
- Phase 3
Retention Process
- Retention Matrix
- Understand Employee’s Motivators
- Develop and Execute an Action Plan to Address Motivators
- Sign Up and Train Key Recruiters Early
Candidate Assessment Process
- Initial Staffing Plans Approved
- Choose Appropriate Retention Actions
- Employee Knowledge and Interests
- Applicability of Retention Actions
- Appropriateness of Retention Action
Transitioning Employees into Acquiring Company
Plan for Exiting Employees
Employee Retention Tools
- Retention Worksheet-Individuals
- Retention Worksheet-Groups
- Retention Matrix
- Action Checklist
- Innovative Retention Actions
Synergy-Based Incentive Plan
- 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
- The synergy plan target would be prorated. If paid at six months, then 37.5% of base salary would be paid. If paid at 18 months, 112.5% of base salary would be paid.
- Management would be allocated pools to distribute on a discretionary basis to those employees facilitating the achievement of synergy goals
- Regular AIP payments in Year 2 would only be made if synergy goals are achieved
Incentive Plan Funding
- Synergies must reach a certain threshold before the plan will fund
- Incentives are based on a percentage of incremental dollars saved that are in excess of public synergy goals
- If synergy guidance of $100 million was communicated to investors, there would be no synergy-based incentives available until at least $100 million in synergies were achieved ...
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