Global merger and acquisition (M&A) activity rose dramatically in the first nine months of 2024 vs. 2023 in terms of the number of deals closed as well as the price of those deals.
The increased workload created by these mergers, acquisitions, divestitures and spinoffs puts a heavy professional and personal strain on employees who work on these deals. In response, companies are increasingly considering special compensation for those employees, according to the results of WTW’s 2024 Acquirers’ Incentive Plan Survey.
We explored what respondents had to say about the way they manage incentives for M&A-deal employees and found several notable key findings.
A little more than one-half of respondents reported providing special one-time compensation as part of a transaction, though less than 20% have a formal acquisition incentive policy for their own employees. These special awards are primarily given to acknowledge the additional workload that employees face during the transaction process. Because many of the companies that offer these incentives do not have policies or guidelines, incentives are largely ad hoc, with no standardized approach to rewarding employees in M&A transactions.
More acquirers provide special deal-related compensation to employees below the executive level than those in the C-suite. While special awards can extend throughout all organizational levels, respondents reported higher participation rates at the non-executive levels. For example, four in five respondents said they provided special incentives to individual contributors versus two in five respondents who said they paid special compensation to the CEO’s direct reports. Highlighting the emphasis on rewarding those who handle much of the operational work involved in M&As as opposed to senior executives, only one in five respondents reported offering special awards to the top executive/CEO.
Most organizations with special compensation plans include those employees in shared services functions (e.g., finance, HR, business development, legal, technology). 70% of respondents offered special awards to both people who work on M&As full-time and those employees who work on M&As as part of a one-time project.
Cash bonuses are by far the most common form of special compensation. According to the survey results, 84% of companies offer a fixed cash bonus as their special incentive. These bonuses typically are payable at a fixed future date or upon deal close regardless of the financial or operational performance.
Additionally, one-quarter of respondents offer a variable cash bonus tied to the post-close financial performance. The granting of equity as a special reward is uncommon; only 27% of respondents offer restricted shares (RSUs), and 4% offer stock options. About 40% of respondents offer multiple types of awards, which typically are a combination of fixed cash bonuses plus one other vehicle (e.g., RSUs, variable cash bonuses).
Compared to findings from the 2024 M&A Retention Study, the median value of special compensation as a percentage of salary offered to key employees at the acquiring or divesting company is lower than the median incentives offered to equivalent employees at the acquired company. In contrast, the median retention payment value for the senior leadership positions at companies being acquired is typically over 50% of base salary and around 30% for the remaining salaried population.
For executives below the C-suite at the parent company, the median incentive value ranges from 21% to 40% of salary. For non-executive employees, that value falls to between 10% and 20% of salary. These values are significantly lower than retention incentives offered to similar-level roles when a company is being acquired. Figure 1 illustrates acquirer award values as a percentage of base salary by employee level.
| Value as a percent of salary | |||||
| Employee level | Percent receiving | Number of respondents providing | 25th percentile | Median | 75th percentile |
|---|---|---|---|---|---|
| CEO | 22% | 14 | N/A | 61%-100% | N/A |
| Direct reports to CEO | 43% | 26 | 10%-20% | 40% | 61%-100% |
| Other executives | 69% | 42 | 10%-20% | 21%-40% | 61%-100% |
| Management | 79% | 50 | Less than 10% | 10%-20% | 41%-60% |
| Individual contributors | 78% | 47 | Less than 10% | 10%-20% | 41%-60% |
Consistent with the 2020 Acquirers’ Incentives Survey, most respondents reported that they do not have an articulated or formal acquisition/transaction incentive policy for their own employees. 70% of respondents also reported that they typically do not include work performed on transactions in the goals of their annual bonus plans. These two results combined indicate that:
The ad-hoc nature of these awards also is explained by the 51% of respondents who said they communicate special awards to participating employees after the transaction closing date.
By not communicating ahead or throughout the deals, the retention power of these awards is diminished. We believe this is a significant area for opportunity for serial acquirers. Formalizing a policy toward how transaction-related work can result in higher compensation for M&A-related staff can help motivate more employees to join deal teams and provide the best effort toward the deal’s success.
Survey participants were asked for their insights about how, in hindsight, they would have approached incentives differently.
Three key themes emerged from the results:
01
Take a more structured approach to plan design. Transactions are not included in most annual bonus plans, and special one-time awards as part of an acquisition are not planned. As companies become more acquisitive, formalized guidelines and/or planning processes for these special awards can lead to a consistent and thoughtful approach to rewarding employees for their M&A work.
02
Improve communication. Respondents were equally split between communicating special awards to participants either before or after deal closure, and three in five paid their awards more than three months after the closing date. By identifying key employees for special incentives early in the deal process and communicating the work required to earn the incentive and when, companies can improve key employee alignment and retention.
03
Balance effort with accountability. While most employees who work on M&A deals are not responsible for the success or failure of those deals, most companies believe that executive teams should be held accountable. As such, aligning financial or operational performance for certain participants needs to be reflected in the plan’s design. This can be done through a variable cash incentive (instead of a fixed payment), or performance-based share awards with goals tied to the deal’s results.
With the amount of M&A activity on the rise, it is critical for acquiring organizations to consider the impact of deals on their employees – particularly those who are responsible for doing the work. Identifying these key employees and ensuring they remain committed to the organization is important for supporting the deal’s success, and special compensation programs have their place.
Having the right partner in place will ensure that the approach you take to acknowledging the efforts of these employees is based on a strategic approach that delivers the highest return on investment possible balanced with the strongest communication to your key contributors.
