Pay for Performance Comes to M&A Retention Awards

70% of respondents reported a fixed retention pool size of less than 2% of the purchase price of the acquired company. Often, pool size is driven by the type of acquisition – companies targeted specifically for their human capital assets may require a larger award budget. 

3 in 10 companies carve out a portion of the retention pool for ad hoc awards used to extend timelines for certain executives, address unexpected situations and recognize key individuals or groups during the process. 

Cash retention bonuses are predominant - typically set as a percentage of annual base salary. The total median award value is 50% of base for senior executives (below C-suite) and 30% for the rest of the salaried population. 

While time-based awards are the most common, nearly one-third of companies now use a combination of time- and performance-based for the senior level. 25% of companies now use both even below the senior level. 

RSUs are now included in the retention packages of more than half of the surveyed organizations for executives (56%) and 40% of non-executive packages.  

More than 80% of executives will remain through the retention period.  

However, cultural differences and conflicting views on future business strategy are often cited as reasons for an executive leaving. The study authors suggest that in addition to financial incentives, companies conduct one-on-one meetings to discuss each executive’s role, future opportunities and how they fit into the long-term strategy.