Back into retention.

• Author: Clanni, Mary

Retention bonuses, which are widely used to keep key talent on board during and after a merger or acquisition, can represent a nificant percentage of transaction costs. But do they deliver a return that cost - both in terms of keeping the right employees and in focusing their actions on the right goals?

With companies facing greater shareholder pressure to both demonstrate the value of a deal as quickly as possible and show ma accountability in compensation arrangements, the issue of attaching performance metrics to retention agreements is looming larger. Base on the results of a recent Towers Watson survey, companies are divic on the issue, with roughly half testing the waters on the performance side and the other half committed to the simpler goal of paying to stay

There can be merit in either approach. The decision depends on host of factors from the nature of the deal and extent of internal disri tion, to the timeframes involved to the skills and composition of the pool of talent to be retained.

Pay-to-Stay: Popular, But How Effective?

The survey focused on retention agreements and related practices among nearly 180 organizations from 19 countries. The vast majority of organizations responding to the survey use retention agreements for at least a segment of their employees, and retention bonuses are the cornerstones of these agreements.

One striking finding is that companies that are the most successful in retaining employees beyond the desired retention period are those that know that retention is not just about money.

Though the survey showed that a bonus is the top retention tactic, globally and by region - i.e., Asia, Europe and North America - other tactics also get high numbers of mentions, including personal outreach by leaders and managers, equity grants in the new company and promotions. (See the chart on page 77.) Use of these tactics varies by region; personal outreach and equity grants are significantly more prevalent in North America than in other regions.

Yet even with the right mix of tactics, there is no guarantee that employees will stay - or that they will remain engaged in their work throughout the integration process. To help drive a high level of performance, 51 percent of buyers said they include performance metrics as part of their retention bonus agreements.

Among those buyers that use performance metrics, 74 percent use individual goals and 69 percent use unit or divisional goals and many use a combination. Only 38 percent use organization-wide performance, probably because it is difficult for the majority of employees to affect performance on such a broad scale.

But performance metrics may not always be a good...