Human resources are the most important assets for many organizations. The enterprise’s success or failure hinges on employee productivity, satisfaction and retention. So, when two companies come together in a merger or acquisition, managing the human impact is critical.
Planning for the people side of things, however, is often overlooked in favor of the strategic or financial imperatives of the transaction. This can lead to a clash of cultures, distrust and employee turnover. To prevent friction between executive teams and dissatisfaction among employees, deal-makers should not overlook the importance of a detailed employee retention plan.
The following are some ways to ensure key employees are engaged, satisfied and productive after the deal has closed:
Evaluate Cultural Synchronicity
While often ignored, the most important factor in a successful merger or acquisition may be cultural synchronicity. When merged, different sets of values, processes and management styles can quickly lead to a culture clash. To manage risk and increase the chance of cultural harmony, it is critical that executives evaluate the two companies’ cultural alignment early in the due diligence phase.
If it is a bolt-on merger, where a larger company acquires a smaller firm, the risk of cultural synchronicity woes is typically lower. Employees are more likely to understand the opportunity and value that the merger brings—emphasizing this and helping them see a path to those opportunities may be enough.
However, if the acquisition is on a larger scale, with companies that each have hundreds or thousands of employees, the acquiring company must spend much more time identifying the cultural gaps between the two organizations. Such firms should work with a professional services team to perform a culture survey or assessment, then carefully analyze the results to identify any risks and ensure a culturally appropriate integration.
Develop an Employee Retention Plan
Soon after the letter of intent is signed, build a retention plan that can be executed immediately after the deal is announced publicly. A key element of the plan is loss impact. Many M&As invariably result in immediate employee attrition, and these voluntary departures are often factored into the M&A plan. However, if you do not lock down your strongest people early on, you may risk losing the talent you depend on most.
These risks and realities of post-M&A reorganization must be accounted for proactively in your retention plan. Begin by documenting how critical each employee is to the transition or to the business overall. You should consider overlap, specifically how to handle duplicate roles, such as back office functions and even C-suite positions.
Review the companies’ respective organizational charts and ask yourself some tough questions: Is this employee important to the business going forward and should they be retained long-term, or do you only need them for a specific amount of time after closing the deal (six months, 12 months, etc.)? In this case, you will need to address a transition plan and determine severance compensation.
Start at the top with the executive team. Due to overlap, many in the C-suite will not stay on. Others may be retained during the transition period, then receive a benefits package or “golden parachute” when they leave. Identify the key figures on your newly combined executive team and have an individualized strategic plan to retain each one. This is not the time to take anyone’s continued employment lightly. It is important to let them know they are valued and have a key role in the new organization.
Next, address your functional leaders in sales, marketing, human resources and finance. Pay particular attention to those on the front lines—your sales leaders and those who report to them. M&A transactions can be extremely disruptive, and the last thing you want is to alienate customers and negatively impact your revenue stream. Work with your sales leaders to develop and execute a transition plan to seamlessly onboard the acquired sales team, retain top performers, and reassure customers of the upsides of the deal. Once that integration is complete, typically six to 12 months down the road, decisions can be made about which leaders to retain.
Whatever your plan of action to keep essential employees, be mindful that compensatory actions do not have to be monetary. Identify what motivates that employee. This could be financial, but it could also be “soft motivators” such as security, inclusion, autonomy, recognition, a small change in title or more authority. The solution depends on the business impact level of the loss and company motivators.
Communicate Early and Honestly
M&As can cause employees a great deal of anxiety that, if left unchecked, can lead to a loss of focus and productivity. Minimize concerns and distractions at this challenging time by proactively communicating expectations and timelines early in the post-deal phase.
As you move forward with the integration, consider hosting social events to bring teams together and forge bonds. If employees are geographically dispersed, executive roadshows or town hall meetings are useful forums for sharing your vision for the company and honestly answering any questions. Additionally, make sure day-to-day managers are equipped to handle questions on the frontlines with messages that are aligned to the overall vision.
Set the Right Tone
Every merger or acquisition will present risks and opportunities. The best chance for success is to have a defined employee retention and impact management strategy. In addition to assuaging employee fears and concerns, proper planning and communication from leadership sets the right tone for the future of the merged company. Be as transparent as possible—even if you do not have all the answers, it will help build a culture of trust at a time when it matters most.