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2017 Global M&A Retention Study

Financial Services Firms

© 2017 Willis Towers Watson. All rights reserved.


About the Willis Towers Watson Third M&A Retention Study (2017)

Respondents by

industry groups

5%

2%

7%

11%

10%

9%18%

38%

Less than 500

500 to 999

1,000 to 2,499

2,500 to 4,999

5,000 to 9,999

10,000 to 14,999

15,000 to 29,999

More than 30,000

Number of full-time workers

employed by acquiring

organization

Survey data collected between March and May 2017

Countries

24Survey participants responded in terms of one particular merger or acquisition their companies had

initiated and/or completed within the past two years.

11%

17%

10%

12%18%

26%

1%

5%Energy and Utilities

Financial Services

General Services

Health Care

IT and Telecom

Manufacturing

Public Sector and Education

Wholesale and Retail

© 2017 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.1

Employers

244 / 41Financial

Services firms


Global results at a glance

Acquirers continue to use retention awards as a way to retain leaders and other key talent

79% of acquirers using retention plans retained at least 80% of targeted employees for the full desired retention period

These plans tend to be targeted toward acquired company leaders and those whose skills are critical to the transaction

The most effective source used to identify the right participants remains the target company’s leaders

Compared to 2014 findings, 2017 findings show a modest increase in individual target values

as a % of salary

For senior executives (i.e., top executive and direct reports), the median retention award = 55% of salary, versus

48% in 2014

For other employees, the median retention award = 31% of salary, versus 27% in 2014

The overall size of the retention budget pool has declined

The median total retention budget pool as a % of purchase price decreased from 1.9% to less than 1.0% in this

year’s study

Acquirers continue to rely on cash retention bonuses as the primary award vehicle

77% of acquirers use cash bonuses for senior leadership; 80% for other employees

Use of stock-based awards (i.e., full-share awards and/or stock options) has decreased in prevalence since 2014

Vesting schedules for senior executives tend to be longer than for other employees

Median full vesting for senior executives occurs at 18 months versus 12 months for other employees

Exclusively time-based vesting is more common than setting performance conditions for all or part of the award

2© 2017 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.


What are high-retention acquirers doing differently?

79% of respondents were able to retain a high percentage of targeted

employees (more than 80%) for the full retention period

How do the plan designs at high-retention acquirers (those with 80%+ retention success) vary from

those at lower-retention acquirers (<80% retention)?

Specialized Selection High-retention firms are more likely to target employees below the executive level with key skills

than low-retention firms (61% vs. 47%), while the low-retention firms were more likely to give awards to those identified as

high potential (33% vs. 23%) or high performance (30% vs. 21%)

Early Communication At high-retention acquirers, 28% of senior leaders were asked to sign before the initial signing

vs. only 11% for low-retention acquirers

Standardized Awards High-retention companies were less likely to take values earned at sale (for example, shares

owned or accelerated stock awards) into account when determining retention values

Delayed Vesting High-retention acquirers are more likely to pay out in full only at the conclusion of the retention period

(53% senior leadership/ 61% other employees), while low-retention acquirers used interim vesting / payment terms (35%

senior leadership/39% other employees)

One design element that is not aligned with higher retention – target award values

Senior leader high-retention company retention median values = 50% of base salary, vs. 70% for low-retention companies

Other employee retention median values = 30-35% of base salary for both high-retention acquirers and low-retention

acquirers



For Financial Services firms, job title/level was the main factor for

retention agreement eligibility


55%

54%

48%

37%

27%

25%

23%

22%

13%

44%

49%

56%

37%

17%

24%

24%

27%

15%

Employees below executive level with key skills in thecontext of the transaction

Information from seller defining "leadership team"

Job title/level

Job function/department (e.g., Finance, Legal)

Other recommendations from seller,below leadership team

High-potential status

Management discretion

High-performance status

Other factor(s)

All Respondents (n=241) Financial Services (n=41)

Base: Total respondents

High-retention companies (61%) are more likely to consider employees with key skills than low-retention companies (47%)


Information from target’s leadership is the primary source of

information; other sources are not considered to be as useful


88%

45%

38%

35%

30%

28%

15%

55%

5%

5%

15%

3%

8%

10%

Information from target's leadership

Organization chart

Reporting level/salary grade information

Market/industry knowledge and information, including insiderinformation (e.g., from current employees, ex-employees)

Information from target's HR specialists

Performance ratings/evaluations

Other source(s)

Used Most useful

2017 vs. 2014 results:

Globally, information from

target’s senior leaders, now

used by 90% of acquirers,

increased in use vs. 2014

(76%)

Base: Financial Services firms giving a valid answer (percentages exclude “None of these” and “Don’t know”) n = 40

Financial Services


Senior leaders are asked to sign retention agreements at an earlier

stage of the deal than employees

21%

18%

34%

11%

11%

5%

6%

3%

44%

6%

38%

3%

Before the initial signing

At the initial signing

Between the initial signing and the close

At the close

After the close

Other time

Senior leadership n = 38 Other employees n = 34

Base: Financial Services firms giving a valid response (percentages exclude “Not applicable” and “Don’t know”)


Financial Services

At high-retention acquirers, 28% of senior leaders were asked to sign before the initial signing (versus only 11% for low-retention)


Cash bonuses are by far the most common financial award used in

retention agreements

77%

37%

26%

17%

17%

14%

6%

6%

79%

24%

6%

12%

21%

0%

3%

0%

Cash retention bonuses

Time-vested full shares/share units

Stock options

Increases in base pay

Guaranteed payment of regular bonus

Division-specific incentives (i.e., earn-out plan)

Performance-vested full shares/share units

Other type(s) of financial awards




Financial Services


Globally, the use of stock options as a

retention tool fell significantly in the 2017

survey (32% of senior executives

received options in the 2014 survey, vs.

16% now)


Bonuses are most commonly set as a percentage of base salary for

both leaders and other employees

33%

22%

19%

15%

11%

44%

22%

7%

19%

7%

As a percentage of base salary

As a fixed amount

As a percentage of annual bonus

As a percentage of total compensation (i.e., salary plusannual bonus)

Other method




Financial Services


Nearly half of those that use stock options or shares for retention

set target values as a fixed value that is converted to a number of

shares or options

47%

24%

18%

6%

6%

0%

33%

22%

33%

0%

11%

0%

As a fixed value converted to a number of shares/stockoptions

Target value set as a percentage of salary/converted to anumber of shares/stock options

As a fixed number of shares/stock options

Target value set as a percentage of total compensation(salary plus annual bonus) and converted to a number of

shares/stock options

Other method

Target value set as a percentage of annualbonus/converted to a number of shares/stock options




Financial Services


Over half of senior leaders receive target values equal to at least

60% of salary, compared to less than 40% of other employees

0%

15%

0%

12%

27%

4%

27%

0%

8%

8%

4%

26%

11%

22%

11%

15%

11%

0%

0%

0%

Less than 10%

10% to 20%

21% to 30%

31% to 40%

41% to 60%

61% to 80%

81% to 120%

121% to 160%

161% to 240%

Greater than 240%


Base: Financial Services firms giving a valid response (percentages exclude “Not applicable” and “Don’t know/prefer not to say”)


Financial Services


Two-thirds responded that values that employees earned at sale

had no effect on retention awards


23%

11%66%

Base: Financial Services firms giving a valid response (percentages exclude “Don’t know/prefer not to say”) n = 35

Those with higher payments at

sale received higher retention

awards in order to provide better

enhancement to stay

Those with higher payments at sale

received lower retention awards,

because the need to provide high

compensation was diminished due

to the value gained from the salePayments received at sale

had no effect on the

individual retention awards

Financial Services


Less than half of Financial Service firms have a retention budget of

less than 1% of the total transaction cost


55%

19%

7%

6%

7%

5%

0%

46%

19%

4%

8%

8%

15%

0%

Less than 1%

1% to 1.99%

2% to 2.99%

3% to 4.99%

5% to 9.99%

10% to 20%

Greater than 20%


Base: Those giving a valid response (percentages exclude “Don’t know/prefer not to say”)

2017 versus 2014 results:

Globally, median value as a percentage of transaction

cost in 2014 was 1.9%. 2017 results are lower by about

50%.

We believe this reduction reflects greater average deal

values due to a rising equities market, without a

corresponding total cost increase in retention awards.

Individual award values are up modestly vs. 2014


Over two-thirds of buyers covered retention costs in full

7%

23%

70%

Base: Financial Services firms giving a valid response (percentages exclude “Don’t know/prefer not to say”) n = 30


Costs were partially

borne by the seller

Costs were 100%

borne by the seller

Costs were 100%

borne by the buyer

Financial Services


A combination of both time-based agreements and performance

metrics are the most prevalent for senior leadership


47%

39%

13%

0%

15%

74%

12%

0%

Combination of both

Time-based agreements

Performance metrics (individual- and/or company-based)

Other



Financial Services


Globally, the use of time-based

agreements for senior execs has

risen from 35% in 2014 to 48%

now

Performance-only plans have

decreased in prevalence from

16% in 2014 to 14% now


Financial Service firms using time-based metrics establish a longer

retention period for other employees

4%

11%

26%

33%

26%

0%

12%

28%

36%

24%

Less than three months after the close

Three to nine months after the close

10 to 18 months after the close

More than 18 months after the close

Other period




Financial Services


Globally, the time frame for senior leaders has

lengthened — median time frame in 2014 was about

15 months post-close vs. 18 months now

Non-executive median retention time frame

remains about 12 months post-close


Half of respondents pay out retention awards in full at the

conclusion of the retention period

50%

40%

3%

7%

57%

25%

4%

14%

Pay out in full at the conclusion of the retention period

Payments were prorated evenly across the retention period

Payments gradually increased over the retention period

Other vesting schedule




Financial Services

High-retention acquirers are more likely

to pay out in full at the conclusion of the

retention period (53% senior leadership/

61% other employees) than low-retention

acquirers (35% senior leadership/39%

other employees)


Financial performance of the acquired business is the primary

factor in determining payouts for senior leaders

45%

27%

23%

18%

18%

14%

9%

0%

33%

44%

0%

22%

11%

11%

0%

0%

Financial performance of the acquired business exclusively

Management discretion

Financial performance of the division that assumedresponsibility of the acquired business

Length of time required to complete the transaction

Cost synergy targets achieved

Retention rates

Financial performance of the entire company

Other metric(s)




Financial Services


Globally, full-company performance

goals for senior execs are less

common — 41% in 2014 vs. 17%

in 2017


More than two-thirds of Financial Services respondents were able to

retain a high percentage of employees (more than 80%) for the full

retention period


4%

3%

2%

11%

79%

10%

5%

5%

10%

70%

Less than 20%

21% to 40%

41% to 60%

61% to 80%

More than 80%


Base: Those giving a valid response (percentages exclude “Not applicable” and “Don’t know”)


Globally, companies are more

successful in meeting their

retention goals — 68% of

companies reported more than

80% retention in 2014, vs. 79%

in 2017


Over a third of the Financial Services employees who left before the

end of the retention period were uncomfortable with the new culture

44%

36%

29%

25%

18%

12%

7%

4%

2%

35%

40%

40%

25%

10%

15%

5%

0%

0%

They were uncomfortable with the new/changingorganizational culture

They were more aggressively recruited by competitors

Other reason(s)

They did not like their new role(s)

They did not agree with the focus/direction of the company

They did not like their new manager(s)

Their retention package was not generous enough

They were displeased with the new pay structure

They were displeased with the new benefit structure


Base: Those giving a valid response (percentages exclude “Not applicable” and “Don’t know”)



Personal outreach was the most common tactic used, in addition to

retention agreements

60%

44%

39%

37%

31%

21%

17%

16%

11%

53%

42%

50%

42%

39%

17%

17%

14%

11%

Personal outreach by leaders and managers

Enhanced career development opportunities

Participation on one or more task forces related to theintegration

Promotions to more senior level

Lateral moves to new roles

Assigning a mentor to help them through the transition

Identifying the right network(s) for key talent to plug into

Moves to different locations

Other

All Responses (n=227) Financial Services (n=36)

Base: All respondents



Write-in comments regarding what respondents might have done

differently in retrospect


Reducing the incremental workload

on key team members during and

after close period. Resourcing more

adequately would have helped.

Increase connections to the new organization;

ensure top leader role design is on target;

balance the challenges of moving from a small

company to a big company (autonomy, small

fish/big pond).

We had a very aggressive

program that I believe was

highly successful in retaining

talent. We front-loaded a

decent amount of the payment

at the insistence of the selling

company, and it would have

been better for the buyer (and

more cost-efficient) if it was

more back-loaded, but this was

the price of doing the deal. You

can also never invest enough in

the softer side of things —

engaging teammates in the

new culture, supporting

leadership through change, etc.

Retention agreements

were only considered

after closing. It would

have been helpful to

plan for this prior to

close so details could

be finalized earlier in

the process.

Should have engaged key

employees earlier to get input

on what was important to

them, instead of statistically

setting up a plan. Each

transaction is different, and

we have to be flexible in our

approach to retention.Build a closer relationship

with the key talent from

the beginning.

Lengthen the

“retention period” and

be more active in

communication about

the strategy, culture

and future plans of

the new company.


Transaction history in the past two years


93%

12%

2%

Acquired another organization

Merged with another organization

Been acquired by another organization

Base: Financial Services firms n = 41; multiple responses permitted

Financial Services


Participant Profile



Transaction size

33%

21%

15%

15%

6%

9%

Less than US$250 million

US$250 million to US$499 million

US$500 million to US$999 million

US$1 billion to US$4.9 billion

US$5 billion to US$9.9 billion

US$10 billion or more

Base: Financial Services firms giving a valid response (percentages exclude “Don’t know/prefer not to say”) n = 33.


Financial Services


Ownership structure

68%

20%

2%

10%

33%

56%

3%

8%

Publicly held

Private

State/government-owned

Other

Acquiring company (n=41) Acquired company (n=39)

Base: Financial Services firms


Financial Services


Company head count

7%

2%

10%

15%

2%

10%

12%

41%

38%

18%

23%

8%

3%

5%

3%

5%

Less than 500

500 to 999

1,000 to 2,499

2,500 to 4,999

5,000 to 9,999

10,000 to 14,999

15,000 to 29,999

More than 30,000



Financial Services



Headquarters location

0%

22%

5%

0%

0%

5%

12%

2%

2%

34%

17%

0%

15%

5%

0%

0%

3%

0%

3%

8%

50%

18%

Brazil

Canada

China

France

Germany

Hong Kong

Japan

Mexico

United Kingdom

United States

Other



Financial Services


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