Merger and acquisition activity in the P/C industry is growing—driven by declining fundamentals and an excess of cash. And negative industry factors, including increased pricing softness, modest investment income growth and slowing reserve releases point to intensified consolidation through 2015 and into 2016. Some M&A activity will be defensive, as smaller commercial and reinsurance players consider strategic alternatives instead of hostile takeovers. However, analysts point to a recent wave of more opportunistic acquisitions, driven by an industrywide desire to diversify portfolios and expand in emerging markets. Executive Summary While pay for performance is a universal standard for compensation programs, using performance metrics alone is not the best strategy for retaining executives or key employees of an acquired company, according to consultants from Towers Watson’s Executive Compensation group. Drawing insights from a recent cross-industry survey, they offer some retention pay tips for P/C insurers engaging in M&A activity.
A newly merged company’s ability to retain and motivate the right talent from both the acquired company and the acquirer will be key to success in this environment. Most acquisitions include some form of retention compensation to keep key employees engaged throughout the transition and beyond. But how those retention agreements are structured can mean the difference between success and the loss of key talent.
A recent Towers Watson survey on M&A retention strategies shows that high-retention companies (those with 80 percent or greater retention over the full desired retention period) and low-retention companies (those with less than 60 percent retention over the full desired retention period) have significantly different approaches to retention. High-retention companies are more likely than others to incorporate into their plans strategic planning, thoughtful employee selection and retention program design, and a focus on the broader employee retention equation. (Editor’s Note: Towers Watson surveyed all types of firms for its M&A retention strategy analysis, not just insurance companies. Insurers made up 6 percent of respondents, and other financial services companies made up 11 percent.)