Major acquisitions are meant to drive business transformation — and, as such, come with shareholder demands that the deal create synergies for the new combined company. Whether it’s cost efficiencies or new revenue streams, executives are expected to improve the bottom line post-close. To reinforce those goals, a limited number of companies introduce special incentive plans tied to those synergies.
WTW’s Global Executive Compensation Analysis Team (GECAT) recently reviewed special synergy awards among the 100 largest U.S. mergers from 2018 to 2022. While M&A activity has varied over this period of review, the prevalence of special long-term incentive (LTI) awards tied to post-merger synergy goals has been consistent.
A few highlights from the study include:
Companies may still be very selective on when to adopt a synergy incentive plan. However, if structured correctly, these plans can better align executives with the need to integrate businesses following a merger and maximize the advantages of being a combined company. If adopted, boards should keep in mind several key issues: