The Advisors' Blog

This blog features wisdom from respected compensation consultants and lawyers

March 25, 2024

M&A Retention Awards: Companies Shorten Retention Periods

WTW recently conducted a study of incentive structures and strategies companies use to retain key employees during an acquisition. The survey of approximately 160 respondents provides useful benchmarking information to shape retention programs more effectively. Here are some key takeaways from this release comparing the results to WTW’s 2020 study:

– Overall, retention pool size continues to decline, with nearly 70% of respondents that track and set aside a retention pool reporting that the retention pool was less than 2% of the purchase price for the acquired company. In a similar vein, fewer companies reported retention pools above 5% of the purchase price, compared to three years earlier.

– Companies also shortened the length of retention periods for top executives between 2020 and 2023. […] In 2020, two-thirds of companies that participated in WTW’s retention study reported retention timelines of two or more years for senior executives. Currently, fewer than 30% of participants reported structuring retention periods to last longer than two years, with the median lying between 13 months and 18 months. Shorter retention periods may reflect pressure to retain employees for only as long as necessary during the transition, which may cut costs for retention packages.

– The study also makes clear that performance pay is climbing, and the focus is shifting from cash bonuses alone to a mix of cash, stock options, RSUs and other awards that account for measurable metrics of success for the target or combined companies. This move toward performance pay almost certainly reflects the character of the purchasing companies. More than 70% of respondent buyers were publicly traded companies, with 66% of the acquired companies held privately.

Meredith Ervine