Key Employee Retention: Best Practices for M&A

Losing key employees during mergers and acquisitions (M&A) can cost you - big time. Nearly 50% of key employees leave within the first year after a deal, and that number climbs to 75% within three years. This creates operational gaps, disrupts workflows, and damages customer relationships, all while costing between 50% and 200% of an employee's annual salary to replace.

Here’s how to prevent this:

• Start retention planning early: Identify critical employees during due diligence and create personalized retention plans.
• Use financial incentives wisely: Offer retention bonuses tied to performance or time-based agreements.
• Communicate clearly: Address employee concerns about job security, roles, and career growth.
• Focus on workplace culture: Align values and processes to reduce cultural clashes, which cause 30% of retention failures.
• Track progress: Monitor turnover rates, employee engagement, and productivity to adjust strategies as needed.

Retention isn’t just about keeping people - it’s about protecting the value of your deal. Start early, communicate openly, and invest in your people to ensure long-term success.

Ep 18. How to Successfully Transition Employees in M&A

Key Employee Retention in M&A Basics

Retaining key employees is one of the most critical elements for ensuring the success of mergers and acquisitions (M&A). Losing essential talent during this process can have far-reaching consequences, well beyond the immediate cost of finding replacements. Below, we’ll break down who these key employees are, the challenges in retaining them, and how their loss can impact the overall outcomes of an M&A deal.

Who Are Key Employees and Why They Matter

In the context of M&A, key employees are the backbone of a smooth transition. Their contributions go far beyond their job titles or paychecks - they bring unmatched operational expertise, maintain vital client relationships, and possess specialized skills that are often irreplaceable.

While the definition of a key employee may vary depending on the company and the specifics of the deal, certain traits consistently stand out. For instance, many of these employees have deep-rooted relationships with clients, meaning their departure could directly impact revenue. Others hold critical knowledge or skills, such as expertise in aging but essential IT systems, which are necessary to keep operations running.

Beyond their technical contributions, key employees often serve as cultural anchors during times of upheaval. When uncertainty looms, they act as informal leaders, helping guide their peers through the integration process. Their importance becomes even more evident during the post-deal phase, where they may play a pivotal role in building the future of the combined organization or ensuring that business-critical processes remain uninterrupted.

During due diligence, savvy acquirers take a close look at these employees, assessing their contributions and alignment with the deal's long-term goals. Losing them isn't just inconvenient - it can fundamentally derail the success of the acquisition.

Common Problems in Keeping Key Employees

The M&A process often creates a perfect storm of stress, uncertainty, and disengagement, which can drive key employees to leave.

One major obstacle is the clash of workplace cultures. Roughly 30% of M&A retention failures stem from cultural mismatches. When two companies with differing values, communication styles, or leadership approaches merge, employees may feel alienated. This is especially true if leadership fails to provide clarity or disrupts well-established processes.

Communication issues only make matters worse. A lack of clear, consistent messaging is a leading cause of employee dissatisfaction, with 61% of workers considering leaving their jobs due to poor communication. During an M&A, employees are often left in the dark about critical questions - Will my job be secure? Who will I report to? - which fuels anxiety and disengagement.

"Especially in today's tight labor market, retaining key employees after the deal closes must be a top priority. Managing employee anxiety and feelings of job insecurity is critical to retaining talent."

• Wesley Shelton, Associate, Proskauer Rose LLP

Leadership changes also present a significant challenge. New leaders often bring different management styles, which can unsettle employees and lead to distrust if not addressed promptly. On top of that, the integration process itself can overwhelm employees, as they juggle their usual responsibilities with new tasks, system training, or changes to benefits and compensation structures. If these changes are perceived as negative, they can push employees to leave.

Career development uncertainty is another sticking point. Employees want to know that staying with the company will benefit their professional growth. Without clear opportunities for advancement or reassurance about their roles, many may decide to explore other options.

How Employee Loss Affects M&A Success

When key employees leave, the ripple effects can threaten the entire value of an acquisition. Statistics paint a grim picture: average employee turnover after a merger hits 47% within the first year and climbs to 75% within three years.

The departure of these employees often means losing critical institutional knowledge - how operations run, how to manage key processes, and how to maintain customer relationships. Without this expertise, businesses can face stalled projects, strained client relations, and reduced efficiency.

"For potential buyers in a business merger or acquisition, the loss of key employees is a significant risk."

• Trey Hendershot, Author, Hendershot Cowart P.C.

The financial costs of losing key employees extend beyond recruitment expenses. There’s lost productivity during onboarding and the potential fallout from disrupted customer relationships. Long-standing clients who trusted specific employees may question the stability of the organization - or worse, follow the departing talent to competitors.

A wave of departures can also demoralize the remaining workforce, creating a chain reaction of exits. When trusted colleagues leave, it often shakes the confidence of those who stay, further impacting morale and productivity. For businesses that handle sensitive information, retaining key employees becomes even more critical, as losing them could pose risks to trade secrets and intellectual property.

Finally, losing key employees can derail the integration process itself. Delays in knowledge transfer, stalled projects, and a failure to realize operational efficiencies can prevent the combined organization from reaching its full potential.

Pre-Deal Planning: Creating a Retention Strategy

When it comes to mergers and acquisitions (M&A), planning for employee retention starts long before the deal is finalized. In fact, it should begin as soon as discussions gain traction. High turnover rates during these transitions highlight the importance of acting early. Experienced acquirers know that losing key talent can jeopardize the success of the deal, making it essential to craft a solid retention strategy ahead of closing.

Replacing an employee can cost anywhere from half to twice their annual salary. When this happens on a large scale, the financial consequences add up quickly. Beyond the numbers, talent loss can disrupt performance, hinder value creation, and threaten the overall success of the merger. To counter this, companies must address employee concerns, offer competitive pay, nurture career growth, and create an environment where employees feel valued. Pre-deal planning allows organizations to systematically identify and retain their most critical team members, ensuring the merger starts on solid ground.

Finding Critical Roles and People

Identifying key employees isn’t as simple as scanning an org chart or salary data. It requires a thoughtful approach that balances speed, depth, and confidentiality. One effective method is to have leaders from both companies - along with HR partners - nominate around 2% of their workforce as "critical talent." These are the individuals in pivotal roles, top performers, or those with high potential. This list is then reviewed by senior leaders, including the CEO, chief HR officer, and integration teams, to prioritize retention efforts based on each person’s impact and likelihood of leaving.

"Premature exit of key employees can significantly affect both integration plans and ongoing operation of the combined business. In many cases, exodus of certain critical team members can destroy deal value." - Klint Kendrick, Chair of the HR M&A Roundtable and Former HR M&A Leader at Oracle & Boeing

During due diligence, pay close attention to names that frequently surface in conversations. Employee lists, succession plans, leadership programs, and recent compensation adjustments can also reveal who the organization values most. Don’t just focus on traditional leadership roles - look for individuals who hold institutional knowledge, maintain key client relationships, or possess hard-to-replace technical expertise.

It’s also important to identify "cultural anchors." These informal leaders may not have fancy titles, but they play a crucial role in guiding their peers through uncertain times. Losing them can lead to further departures, making it vital to include them in retention plans.

Learning What Employees Want and Worry About

To keep key employees, you need to understand what motivates them and what concerns they have. This is where stay interviews come in handy. Unlike exit interviews, which are conducted too late, stay interviews proactively uncover what keeps employees engaged and what might push them to leave.

Retention committees should evaluate existing challenges and gauge how employees might perceive the merger. This includes assessing whether current incentives are effective and identifying groups or individuals who may be at higher risk of leaving before the deal is complete.

Communication plays a huge role here. Poor communication can trigger unnecessary departures, so it’s critical to create open dialogue through surveys, town halls, and one-on-one meetings. Cultural compatibility is another major factor - about 30% of retention failures during M&A stem from cultural mismatches. Directly addressing concerns about changes in management, work processes, and company values can help ease anxieties. Employees also worry about career development - whether their advancement opportunities will shrink or their skills will become obsolete. Addressing these fears is key to building trust and loyalty.

Creating Custom Retention Plans

Retention strategies work best when tailored to individual employees. A one-size-fits-all approach rarely delivers the desired results. Instead, combine financial and non-financial incentives to create a balanced plan.

Financial incentives are effective for addressing short-term retention risks, while non-financial rewards - like recognition and increased responsibilities - often have a stronger impact on long-term engagement. A McKinsey survey noted that praise from immediate managers can be more effective than cash bonuses or pay raises when it comes to keeping employees motivated.

Retention Approach	Best For	Key Considerations
Financial Incentives	Short-term retention, high-risk roles	Should be discreet and tied to clear performance expectations
Non-Financial Incentives	Long-term engagement, cultural fit	Focus on recognition, career growth, and meaningful responsibilities
Hybrid Programs	Comprehensive retention strategies	Combine immediate rewards with long-term opportunities for balance

Discretion is critical when rolling out retention programs, especially financial ones, to avoid resentment among employees who aren’t included. Consider establishing a dedicated talent selection office to streamline the process, enhance employee experiences, and minimize legal risks. Companies that implement strategic recognition programs often see voluntary turnover drop by 31%.

Retention plans should also include clear communication about future opportunities. Employees need to see how the merger will benefit their careers and open up new possibilities. When framed correctly, this can turn uncertainty into optimism about what’s ahead.

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Best Methods for Keeping Key Employees

When navigating mergers and acquisitions (M&A), retaining key employees often hinges on three main pillars: financial incentives, clear communication, and cultural integration. Companies that successfully balance these elements are more likely to maintain stability and achieve their goals during the transition.

Retention Bonuses and Pay Structures

Offering financial incentives is one of the most straightforward ways to keep essential employees during uncertain times. Retention bonuses, for instance, are crafted to ensure that critical staff remain engaged throughout the M&A process. Studies show that nearly 60% of organizations now utilize retention bonuses, with typical amounts ranging from 10% to 30% of an employee's annual salary.

The design of these bonuses is just as important as the amount. Many retention agreements are time-based, requiring employees to stay for 12 to 24 months after the deal closes. Others incorporate performance-based components to keep employees motivated. On average, companies are allocating 6% to 7% of payroll for broad-based variable pay in 2025, with executives often receiving targets of 30% or more. Retention values can range significantly - from 40% of salary for regular employees to as much as 140% for CEOs.

Here’s a quick breakdown of common retention strategies:

Retention Method	Pros	Cons	Best For
Lump Sum Bonuses	Immediate impact; easy to administer	High upfront cost; no long-term guarantee	Short-term critical roles
Installment Payments	Encourages long-term retention	Complex to administer	Long-term integration periods
Stock-Based Awards	Aligns with company success	Subject to market risks; complex to value	Senior leadership
Hybrid Structures	Flexible and balanced approach	Harder to design and communicate	Comprehensive retention plans

"Research suggests that today's college graduates will have a dozen or more jobs by the time they hit their 30s." - Emily He, former SVP of Human Capital Management at Oracle.

To make these financial incentives more effective, many companies tie vesting to performance metrics such as revenue growth, total shareholder return, or earnings per share targets. These elements are often integrated into broader long-term incentive plans, ensuring alignment with company goals.

Clear Communication to Build Trust

Once financial incentives are in place, transparent communication becomes the next critical step. Organizations that communicate effectively during mergers are 3.5 times more likely to retain their top talent. In fact, 73% of employees believe clear communication is essential for reducing uncertainty and anxiety during these transitions.

A strong communication plan should include key messages, target audiences, and delivery channels. Regular updates - covering both successes and challenges - help employees understand the rationale behind the merger and its potential benefits. Equally important is enabling two-way communication through tools like employee surveys and team check-ins. These feedback mechanisms allow companies to address concerns and adjust their approach as needed.

Building a Collaborative and Welcoming Culture

Cultural integration is often the make-or-break factor in retaining employees during an M&A. Cultural misalignment contributes to a 30% failure rate in achieving financial targets, and 67% of mergers face delays in realizing synergies due to cultural issues.

Conducting a culture assessment early on helps identify potential friction points. From there, a tailored integration plan can address these challenges head-on.

"Organizations are living, changing, growing organisms fed by constant change and improvement." - Patrick Maguire, Senior Vice President of Content at FranklinCovey.

Involving employees in decisions about which cultural elements to preserve or adapt fosters inclusivity and reduces resistance. Practical steps include engaging leaders from both organizations to model collaboration, defining shared values that align with a unified vision, and celebrating early successes to build momentum. Cross-functional teams and targeted cultural training can also ease the transition for employees.

It’s worth noting that up to 70% of M&As fail to meet expectations, with cultural clashes playing a major role. Furthermore, 60% of acquirers have expressed regret over not prioritizing culture and change management during integration. By addressing these challenges proactively, companies can create a smoother transition and ensure long-term success.

After the Merger: Integration and Tracking Retention Success

The success of a merger often hinges on how well employees are integrated into the new organization. Post-merger turnover is a significant risk, making it critical to implement tailored onboarding strategies that prioritize retention from day one.

Custom Onboarding and Integration Plans

A customized onboarding process can help employees navigate role changes, new reporting structures, and shifts in workplace dynamics.

Take Cisco, for example. The company provides competitive retention packages and incorporates acquired employees into its talent development programs. This approach ensures that employees feel valued and secure in their new roles. Effective integration plans should also include clear journey maps, outlining key phases and milestones. Empowering mid-level managers with decision-making authority can further bridge gaps between leadership and staff.

Another excellent example comes from GlaxoSmithKline (GSK). When Glaxo Wellcome and SmithKline Beecham merged, GSK conducted extensive cultural assessments and worked to build a shared culture that combined the strengths of both organizations. This effort helped prevent the cultural clashes that often derail mergers.

Ongoing Support and Feedback Systems

Structured onboarding is just the beginning. Continuous support and robust feedback systems are vital to maintaining employee morale and reducing turnover. Dell's acquisition of EMC is a case in point. The company used regular town hall meetings, newsletters, and an internal website to keep employees informed, address concerns, and collect feedback.

Pulse surveys can also play a critical role in gauging employee sentiment. For instance, NLB Commercial Bank utilized HeartCount's PulseCheck surveys after its merger with Commercial Bank. These surveys gathered feedback from over 2,000 employees and helped the organization earn an international Top Employer Certificate. As Boston Consulting Group (BCG) emphasizes:

"Consistently gathering employees' perspectives and feedback is crucial for successful PMIs."

But collecting feedback isn’t enough. Acting on it promptly shows employees that their voices matter. Tailored training programs can further ease the transition by helping employees adapt to new systems, processes, and workplace norms.

Measuring Retention Metrics and KPIs

To gauge the success of retention efforts, organizations must track the right metrics and adjust strategies as needed. Establishing key performance indicators (KPIs) early on and reviewing them regularly is essential. Amazon’s acquisition of Whole Foods highlights this approach. The company continually assesses customer feedback, market conditions, and operational performance to refine its post-merger strategies.

Some key metrics to monitor include:

• Employee Turnover Rates: Track both voluntary and involuntary departures among key staff.
• Employee Engagement Scores: Use surveys to measure engagement across teams.
• Productivity Measures: Monitor performance metrics specific to various roles.
• Cultural Integration Progress: Assess collaboration and cohesion between teams.
• Time-to-Productivity: Evaluate how quickly employees adapt to new processes.

These metrics help organizations close the feedback loop, aligning post-merger actions with initial retention goals.

The stakes are high. Research shows that cultural differences and operational changes account for nearly 50% of mergers and acquisitions failing to meet expectations. Moreover, 75% of completed integrations face cultural challenges that lead to delays and employee departures. However, dealmakers who effectively manage cultural challenges succeed 54% of the time, compared to just 9% for those who don’t.

Marriott’s acquisition of Starwood Hotels offers a valuable lesson in successful integration. Marriott maintained transparent communication about loyalty program benefits and ensured a seamless experience by closely monitoring both customer satisfaction and employee retention metrics. Creating a continuous improvement cycle - where feedback informs strategy adjustments, which are then measured for effectiveness - can help organizations navigate the complexities of post-merger integration.

Conclusion: Achieving Retention Success During M&A

Retaining top talent during mergers and acquisitions (M&A) requires more than just financial incentives - it demands a thoughtful strategy that prioritizes the human side of change. Companies that excel in retention see tangible benefits, with high-retention organizations being 24% more likely to sustain profitable growth. This highlights the importance of taking early and deliberate steps to secure key employees.

The cornerstone of retention success is early planning and proactive engagement. Identifying critical employees at the very beginning of the M&A process - rather than after the deal is finalized - is essential for maintaining stability. Guy Ellis, Founder and CEO of Courageous Workplaces, underscores this point:

"The most common mistake is not to value everyone else highly enough, as they are the ones most likely to leave."

Clear and transparent communication plays a pivotal role in retention strategies. Open discussions about the merger’s purpose, timeline, and potential impact help build trust. Companies that pair transparent communication with recognition programs experience 31% lower voluntary turnover rates. This demonstrates the power of combining acknowledgment with openness.

Retention efforts should also address deeper employee needs. Offering personalized retention packages that include career development opportunities, flexible work options, and meaningful roles in the integration process can make a significant difference. Lesley Fordyce, Change Director at Equator, puts it succinctly:

"People stay because they feel valued, not just because of the size of their remuneration. Offer them the chance to grow personally when the business builds."

Tailored plans should be continually refined through feedback. With 20% of critical talent typically leaving within the first three months post-merger, companies that use tools like pulse surveys and regular feedback sessions can identify and address concerns quickly. This creates a feedback loop that strengthens retention strategies over time.

Empathy is another key ingredient. As Melinda Queck, Head of HR at VIQU, explains:

"It's about using as much empathy and understanding as possible."

Blending this empathetic approach with data-driven insights ensures a balanced and effective retention strategy.

For leaders navigating the complexities of M&A, the message is clear: start early, communicate honestly, and stay flexible. Investing in retention is not just a smart financial move but also a strategic one. By adopting the strategies outlined here, organizations can turn what is often a disruptive process into an opportunity for stronger employee engagement and long-term growth.

FAQs

How can businesses effectively identify key employees during a merger or acquisition?

To pinpoint key employees during a merger or acquisition, it’s essential to work closely with HR leaders to identify critical roles and individuals who are vital to the company’s success. Ideally, this process should kick off before the deal is finalized to ensure a smoother transition.

Take the time to understand employees' skills, motivations, and values to evaluate how well they align with the goals of the merged organization. Recognizing their contributions and offering tailored incentives can go a long way in reinforcing their value and commitment. Throughout this process, maintaining open communication and being transparent are crucial for building trust and keeping top talent engaged.

How can companies offer financial incentives for retention without causing resentment among other employees?

To prevent resentment, companies need to ensure that retention incentives are equitable, transparent, and tied to a larger employee engagement strategy. It's crucial to clearly explain the purpose of these incentives and highlight how they support the company's objectives during periods of transition.

Beyond financial rewards, consider blending in non-monetary recognition initiatives that benefit everyone. These could include opportunities for professional growth, team-building events, or enhancements to the workplace environment. Such efforts promote inclusivity and strengthen a positive workplace culture, reducing the risk of perceived favoritism.

How can companies ensure clear and transparent communication with employees during a merger or acquisition?

During a merger or acquisition, clear and honest communication is essential. Companies should share straightforward details about why the deal is happening, what changes employees can expect, and the steps being taken to reduce disruptions. Providing this information early and consistently helps ease uncertainty and builds trust.

A well-thought-out communication plan with clear timelines and milestones is crucial to keeping everyone informed. Use multiple channels - like emails, meetings, and Q&A sessions - to share updates and address concerns. Creating opportunities for open dialogue and responding to employee questions promptly shows that their input matters and helps maintain engagement.

By prioritizing transparency and regular updates, companies can foster a sense of trust and stability - key factors in retaining top talent during times of transition.