December 18, 2023

Retention Programs Covering More than the C-Suite

This fall, I blogged about the potential importance of taking a broader approach to identifying key talent critical to retain during an acquisition or merger. The article “Retaining Employees Below the C-Suite During a Merger” in the December 2023 Debevoise MarketCheck says that merger parties have recently been doing just that given regulatory pressures increasing the gap between signing and closing and the increased risk of attrition. Recent retention programs are also more likely to go beyond one-time transaction awards and layer a variety of retentive devices, but the timing and structure may differ for the C-suite and non-executive employees. Here’s an excerpt:

– Executive-level retention programs may be introduced during the pre-signing phase, while retention programs for non-executive employees tend to be established following the deal announcement. This timing avoids bringing too many employees “over the wall” prior to signing. For buyers, it allows sufficient time to identify critical employees and functions necessary for deal completion and successful post-closing integration and performance.

– The most common structure for non-executive employees remains fixed-amount stay bonuses for remaining employed until a specified date or dates—typically the closing or a defined period after. Retention awards can be paid as a lump sum or in installments on specified dates or milestone events. However, for transactions where antitrust or other regulatory concerns may delay the closing by a year or more, we have seen retention awards structured to pay a portion on the first anniversary of the signing date, with the remainder to be paid on or after the closing date. Retention awards often pay out as well if the employee is involuntarily terminated before the payment date. A clawback obligation may be included in the retention award to deter resignations within a specific period and enhance retention benefits to the buyer beyond the closing.

As a supplement to traditional retention programs, performance-based retention awards tie incentives to individual or company-based metrics. These programs can be designed to retain employees who stay through the transaction with meaningful upside for exceptional individual or company performance, which can help keep employees focused on business performance in a longer pre-close period. These programs require careful consideration of the appropriate metrics, targets, amounts, and timing of payments to ensure the objectives of the program are met.

Meredith Ervine