Retention Bonuses – Buyer Beware
The outlook for mergers and acquisitions activity in 2013 is mixed. Some investment bankers are cautiously optimistic, others are expecting a modest improvement over 2012 at best. A recent Thomson Reuters survey indicates that we’ll probably see more companies divest non-core assets. Where there’s a divestiture, there’s an acquisition. Often retention of key talent is a concern, which leads to retention bonuses.
Do retention bonuses work?
If key people stay, then, yes, retention bonuses work if the prime objective is to keep a body on board. But buyer beware: pay-to-stay schemes buy loyalty, not performance.
What are the true costs, the side effects, and the unintended consequences of pay-to-stay schemes?
The problem with retention bonuses is multi-faceted. One problem is that, though the employee may stay for the time being (and that may be what the company wants and needs especially during and after a merger or acquisition), that employee may not be truly be engaged. He or she may show up in body but not spirit. It comes down to fulfillment. It can’t be bought.
To improve your ROI, use a pay-to-stay and a pay-for-results strategy by linking retention and performance to retention bonuses.
There are abundant sports analogies that we could cite. We won’t clutter the page with examples that we all know. Suffice it to say that sports and business do have things in common, the most obvious is competition. What is business if not a competitive endeavor? Anyone who has participated in a team sport has heard the adage about the ‘weakest link.’ Without meaningful performance-enhancing elements—such as challenging job content, meaningful stretch goals, and medium- to long-term career opportunities—retention bonuses alone result in weak links, and there goes the chain.
We often ask candidates to tell us about their achievements. If they have been demoralized because they feel like they have allowed themselves to be bought by accepting a pay-to-stay bonus, they are likely not motivated to achieve greatness, their results and references will be mediocre. We’re not searching for candidates whose greatest achievement is that they were loyal.
Retention bonuses that aren’t linked to performance provide short-term gain and long-term pain.
And if you're ready to start your next executive search, find out how our experienced consultants at GAAP Executive Search can help you recruit top-performing financial executives.