Golden handcuffs fail to hold talent

Wake Forest study looks for factors that retain workers after mergers

April 01, 2001|By ASCRIBE NEWS SERVICE

WINSTON-SALEM, N.C. - Financial incentives don't win the war for high-tech talent, according to new research by two Wake Forest University professors.

Their research showed that retention tools such as cash, stocks and options are not the most significant or effective means to acquire and retain talent through high-tech mergers and acquisitions.

The findings are contained in "Acquiring New Knowledge: The Role of Retaining Human Capital in Acquisitions of High-Tech Firms," published in the Journal of High Technology Management Research.

About 100 companies

Michael D. Lord, assistant professor at Wake Forest's Babcock Graduate School of Management, and Annette L. Ranft, assistant professor at Wake Forest's Calloway School of Business and Accountancy, conducted their research on acquisitions of nearly 100 high-tech companies in sectors such as software, telecommunications and networking equipment, and biotechnology.

Lord said that in recent years there has been a surge of such deals, made for the primary purpose of securing high-tech talent - gaining the acquired firms' programmers, scientists, engineers and their marketing and entrepreneurial wizards. Their individual skills and collective capabilities are often the most valuable, and sometimes are the only, assets of the acquired firms.

Human factors cited

Unlike acquired physical or financial assets, this high-tech talent can walk out the door at any time - and the workers very often do leave after their firm is acquired, leaving a failed acquisition in their wake.

The most common tactic used to try to prevent this involves offering "golden handcuffs," a combination of cash, stocks or options as part of long-term retention contracts.

But while these financial enticements may help retention in some cases, they clearly are not sufficient in most cases. In fact, the study showed that cash, stock or option retention incentives are not significant determinants of retention.

Instead, intangible factors - related to status, autonomy and commitment - are by far more significant, the study found.

"The results we found are especially significant and interesting given that golden handcuffs are the most common approach acquirers use to try to retain key talent," Lord said.

The use of golden handcuffs often fails to motivate the employees to stay for a variety of reasons, according to the researchers.

Intangible factors

"Much of the acquired firm's high-tech talent may have gotten a windfall from the acquisition itself because they owned stock or options in the company when it was acquired at a high premium, so money is less of a motivator now," Lord said.

"Plus, if those workers can command such a high premium from the acquirer, that means they're also likely to be very valuable to competing firms and can command high compensation elsewhere if they leave in the wake of an acquisition," he added.

In addition, some of the best high-tech talent tends to be more motivated by intangible factors, such as achievement, status, the possibility of doing work that changes the world or being a self-directed entrepreneur.

Failing to understand these factors can lead to expensive acquisition failures, Lord said.

"In the continuing war for talent, cash, stock and options are at best limited weapons in a firm's arsenal, and certainly not the sole answer to the strategic challenge of acquiring and retaining world-class knowledge workers," Lord said.

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