This is the third post of Insight’s series on Post-Merger Integration. See our other posts here and here.

A merger or acquisition transaction typically marks a major milestone for both parties. For the acquirer, buying a smaller business may help validate the strength of the company and solidify its market position. For the acquiree, joining forces with a larger competitor may provide the resources and reach required to scale a product more quickly. Amid the excitement, realizing the economic rationale of the deal and planning for future success will require the executive team to make tough decisions during the post-merger integration (PMI) process—especially with respect to talent. If not managed carefully, these decisions will cause distress and anxiety among employees, which may lead to attrition of important individuals. Ultimately, unplanned attrition of critical team members will adversely impact the realization of the deal’s economic goals.

In this blog post, Insight Onsite provides five tips for keeping employees engaged and motivated throughout the PMI process so that you can realize synergies while retaining key people.

#1: Create a list of “mission-critical” employees, and track it diligently at the executive level

Long before the deal is announced, the CEO should meet with the core leadership team and a few executives from the target to draw up a list of important individuals that the combined entity needs to retain post-acquisition. Insight’s CEOs suggest relying on department heads to provide the proper perspective, and digging into the reasons why each person should be included. The senior team needs to iterate until they’ve narrowed the list to a few essential employees – portfolio company executives suggest that the final mission-critical list is typically 5-10 employees.

The purpose of this list is to ensure that executives at the highest level of the organization know exactly who to focus on retaining; a practical way to do this is to develop a “key employee status tracker” and spend time reviewing it at every executive leadership meeting. The CEO should personally know the status of each “mission-critical” employee. Achieving 100% retention of this cohort should serve as a success metric for the overall PMI.

Insider tip: Be sure to look deep within the engineering team. Several seasoned executives that Onsite interviewed indicated that proprietary product knowledge is often hidden among mid-level developers. Make an effort to pinpoint these developers to guarantee all proprietary knowledge is retained.

#2: Design right-sized incentives – it’s not only about the dollars

Incentive packages for mission-critical employees must be designed around two dimensions: compensation and responsibilities. Both dimensions are mutually reinforcing. Expanded responsibilities are a strong signal to employees that they are valued and important to the future success of the joint entity. Compensation incentives demonstrate that an executive team is willing to invest in keeping high quality talent.

Immediately after transaction close, each mission-critical employee should have one-on-one conversations with their direct manager as well as the head of their department. The goal of these conversations is to explain the employee’s expanded role and responsibilities, reinforce his or her value to the organization, review a revised compensation package, get buy-in for the new vision for the company, and unearth any concerns. These initial conversations serve as the foundation for the status tracker utilized by the executive leadership team to track employee retention.

#3: Build trust by being transparent, especially about potential cuts

Businesses are social networks comprised of friendships and daily shared interactions. Morale can easily be tainted if employees lose trust due to a perception that their friends and colleagues have been treated unfairly. It is important to be transparent with all employees – whether they are being retained or not. Every individual in the organization deserves frank and transparent communication. This means being upfront about potential cuts.

Some CEOs that Onsite spoke with regretted either not talking directly to certain employees, or avoiding difficult conversations by talking in platitudes. People understand that doing business requires making tough decisions. Those decisions just need to be made and delivered in a fair manner.

#4: Actions speak louder than words – even small actions

Building trust is the baseline.  The role of the executive team is to reach above and beyond the baseline by generating real excitement about the future among all employees. Companies do this through several small but meaningful gestures.

For example, employees appreciate “welcome” gifts filled with branded swag from the new joint entity, updated business cards, and a letter thanking them for their hard work and commitment. Companies often publish a regular newsletter highlighting early integration wins to make people feel motivated to keep pushing towards company goals. Some companies also host get-togethers to help teams integrate more quickly.

One executive team we spoke to regretted not spending the money on bringing the sales teams from both companies into the same room soon after the deal was announced; it would have meant several expensive cross-country flights at a time when costs were being reduced. Joint team meetings allay fears of the unknown and humanize leaders and new team members.  Nothing builds trust more than face-to-face meetings. The right tone is set when the executive team of the acquirer, particularly the CEO, is onsite at the acquiree for the Day 1 announcement, ready to converse and meet with all the new employees and company leaders.

#5: Establish fast, meaningful feedback loops with surveys and 1:1 meetings

Every integration process should establish a feedback system based on regularly surveying employees across the new joint company. Insight’s experienced CEOs strongly suggest supplementing organization-wide surveys with continued bi-weekly one-on-one meetings between mission-critical employees and their direct managers.

Direct managers must be tasked with ensuring that important team members have clear goals and the tools they require to be effective. In turn, direct managers should have regular in-person meetings with their executive sponsors to ensure that there is no breakdown of motivation or morale along the full reporting structure. 

In summary:

If there is one thing we heard repeatedly as we spoke with seasoned executives across the portfolio, it’s that people are a company’s greatest asset. Inattentiveness towards employee morale amidst the pressure to realize cost synergies during PMI can put this asset at risk. Retain the people you need by tracking “mission-critical” employees, being thoughtful about incentives, building trust through transparency, doing the little things that engender excitement, and collecting feedback consistently. If you want to have your cake and eat it too, approach talent retention as a strategic priority throughout the PMI.