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Management retention programmes during major ownership transactions

Last updated: 11 September 2007

 

Retaining key individuals at the management level is a critical issue for organisations going through ownership transactions – mergers, acquisitions, divestitures and private equity investments – either to close the deal or over a longer period post integration.

 

This Perspective describes the factors an organisation should consider in establishing a management retention programme, and highlights the features in the design process that can support transaction objectives.

Management retention programmes at a glance

 Feature Key issues for consideration
Business case 
  • Is there a need to retain key executives?
  • Will existing incentive arrangements retain the required executives or encourage them to leave?
  • What is the cost-to-benefit value of the proposed retention programme?
  • Are there any corporate governance or legislative issues to consider? 
Transaction type
  • Merger: Do we need two retention strategies, pre- and post-merger?
  • Acquisition: Do we need to retain executives after the transaction?
  • Divestiture (total liquidation, sell-off or spin-off): How do we retain key management until the transaction close?
  • Private equity: Is the estimated value at IPO or exit enough to retain key executives? 
Retention programme design
  • Eligibility: Which executives are critical to retain and should be eligible for the retention programme?
  • Size of award: How should the size of award be determined for each executive?
  • Retention period: How long does each executive need to be retained?
  • Payment timing: Should the payment be made in one or several instalments?
  • Form of payment: Should retention awards be made in cash or shares?
  • Performance: Should the retention programme have a performance feature?
Measuring success
  • Did the retention programme meet objectives, and what was the financial gain from retaining the executives? 

 

 

In this issue, answers to:

 

  • Do we need a management programme?
  • What should we consider when building a case for a management retention programme?
  • How can the type of transaction affect our retention programme strategy?
  • How can we design an effective retention programme?
  • Why should we measure the success of our management retention programme? 

 

To download the full Executive Remuneration Perspective newsletter, click on the 'Download' button on the right-hand column.

 

Management retention programmes during major ownership transactions

 

Management retention programmes

 

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