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Data & Research September 29, 2010
M&A Success Hinges on Four Points
A new survey by Hewitt Associates found that how companies leverage
their compensation and benefits programs during mergers and
acquisitions plays a critical role in retaining key talent and ensuring
the overall success of the deal.
Reported by Rebecca Moore
According to a press release, Hewitt’s July M&A survey of 103 companies showed that they all shared four key strategies during the process: focusing on liabilities in due diligence; looking at total rewards in aggregate; being deliberate about talent retention; and being well-equipped, highly-focused, and effective.
The “overachiever” companies gave extra attention to total rewards elements in due diligence that are most likely to create liabilities, including employment contracts, change-in-control and severance agreements (95%); executive compensation (90%); defined benefit retirement plans (79%); and executive benefits and perquisites (74%).
The survey found that during the purchase agreement stage, more than two-thirds (67%) of successful organizations provided compensation and benefits similar to those of the acquired company for a set time after close. This broad commitment helped ensure employees didn’t experience a loss in the value of their rewards because of the acquisition—a core concern of most employees. These organizations were also more likely to make similar commitments for their employees in a divestiture situation (69%).
Most successful companies (63%) also examined compensation and benefits together and as part of a larger reward strategy after the deal closes. These companies looked for tradeoffs that enabled increases in some areas of benefits and compensation to be offset by decreases in other areas, Hewitt said.
More than three-quarters (77%) of all companies identified retention packages among the most effective tools in retaining top talent during a transaction. However, successful companies typically developed packages that were contingent upon the achievement of post-closing metrics and in all instances, the retention bonuses were payable within three years. These packages were also often offered much deeper within the organization—below the senior executive level.
Beyond specialized retention packages, the survey shows that companies that exceeded their deal objectives also paid more attention to areas such as role selection and identification of high-potential talent.
According to Hewitt, more than half (58%) of companies that exceeded their deal objectives had highly capable, globally-experienced teams that were adept at executing effective total rewards initiatives in transactions. Most importantly, these organizations were very effective at retention planning, addressing retirement benefits, and addressing executive compensation plans.