A sharp uptick in mergers and acquisitions activity this year, and expectations for more of the same in 2025, are signs of hope for the prospects of U.S. businesses after some bumpy economic trends in the past few years.
However, one aspect of M&A deals that may go unrecognized, even in an acquisitive environment like the one in progress now, is the additional burden placed on acquirers’ employees who work on these transactions. That applies to a company’s top executives and non-managerial contributors alike.
Many companies are making an effort to reward key participants in executing deals. In a survey of more than 160 organizations by Willis Towers Watson (WTW), just over half of them said they’re providing one-time compensation as part of a transaction.
To a significant extent, such offers are ad hoc (i.e., discretionary bonuses with no standardized approach), according to an executive pay memo by three WTW officials. Fewer than 20% of those surveyed said they have a formal acquisition incentive program for their employees. Additionally, 70% reported that they don’t typically include M&A-related work in goals under employee bonus plans.
While the bonuses may be categorized as incentives, recipients “may not be aware until late in the transaction process that the company is rewarding them for additional work,” the memo said. Indeed, 51% of survey respondents said their companies communicate special awards to employees after transaction closing dates.
“By not communicating ahead or throughout the deals, the retention power of these deals is diminished,” the memo opined. “We believe this is a significant area for opportunity for serial acquirers. [Formalizing an M&A compensation policy] can help motivate more employees to join deal teams and provide the best effort toward the deal’s success.”
The highest-level executives are the least likely to receive M&A incentive pay, with only 22% of the surveyed companies reporting that their CEO is eligible. The memo noted “the emphasis on rewarding those who handle much of the operational work involved in M&A.” Among direct reports to the chief executive such as CFOs, 43% were eligible.
However, the CEOs who are included get paid the most, with the median incentive payout ranging from 61% to 100% of their annual base salary. The median for the direct reports was 40%.
Most companies offering M&A compensation include employees who work in shared services functions such as finance, HR, business development, and IT). In the survey, 70% of organizations that do offer such compensation said they include both people who work on M&A full-time and those who do so as part of a one-time project.
