Lifting out the Right Teams January 2015

Transcription

1 Lifting out the Right Teams January 2015 Laura Hay Charlotte

2 What is a Lift-Out? Acquisition of 2 or more employees at the same time Coordinated, simultaneous hiring of a group of valued employees in a particular business unit or office to a competitor Most prevalent among service industries where human capital drives shareholder value, especially where customer relationships are less dependent upon franchise value Examples: PrivateBancorp lift out of 160 employees from LaSalle Bank, including CEO, CFO, Top Strategy & Marketing, CRO, Top HR Other examples among community banks: Commercial Lending teams, Wealth Management teams Lift outs have become more acceptable and more effective Most employees now are more loyal to managers/supervisors than to companies signing their paycheck 1

3 Why? Lift-outs balance the strengths and risks associated with alternative approaches to acquire talent Acquisition Lift-out Individual Hire + Hire a lot of talent at once Potential value in franchise, in addition to talent - Integration is difficult; fewer than 50% are successful Forced to buy unwanted pieces Hire groups of key talent Key talent is familiar with each other, lessening integration time/cost; productive on day one Less of a price premium than acquisitions Provide all the capability of another organization, without the cost and integration difficulty of a complete bank acquisition Poorly executed, current talent may be at risk Potential legal issues and restrictive covenants Integration risks with current employees, including pay equity Become known as talent poacher Very targeted: no need to take the people you don t want Slow: requires a lot of time to build desired team Difficult to predict team chemistry 2

4 Best practices During courtship, thoroughly complete due diligence and socialize ideas and reasons for combination Agree on business goals and strategies identify client relationships, loan portfolios, etc. that (a) are portable, (b) might be portable, (c) unlikely to move Resource and decision-making requirements from both sides operating budgets and back office support; hiring/firing authority; compensation Due diligence on restrictive covenants Discussions of interest among entire team Integration is crucial Access to hiring firm s executive team; commitment and buy in from C-level Cultural compatibility Similarity in organizational culture is important Don t lift out a new team to facilitate change Beware differences in compensation levels and structure Use caution with different compensation arrangements that have the potential to create winners and losers relative to legacy organization Consider one-time sign-on bonuses and/or retention awards that will not contribute to permanent structural compensation expense consider group sign-on bonuses Manage expectations of legacy employees 3

5 Additional considerations Depending on size of anticipated lift-out, consider hiring HR resource from target first Knowledge of skills/experience/performance/potential of team members under consideration Knowledge of resource requirements and compensation expectations Prioritize desired team members, in case entire team is unwilling to move or constraints upon resources available to facilitate lift out Consider all compensation issues Expect significant questions regarding pay programs Outstanding producers will be motivated by pay and will ask nuanced questions regarding structure of incentives, approach to setting performance goals, and form/timing of incentive payouts How much are you willing to pay? Will pay compression and/or pay equity with legacy employees be an issue? 4

6 Defending against a lift-out of your own talent Annually review restrictive covenants (non-disclosure, non-solicit, noncompete provisions) consider tying to participation and/or receipt of variable pay Handcuffs and termination protection for key producers Equity awards with extended vesting provisions and/or mandatory deferral of portion of variable pay Severance benefits and/or CIC severance protection Mitigate Risk Consider who has access to customer relationships and information Establish contingency plan for interim management of critical functions and customer relationships Focus on talent development especially strong managers and ensure appropriate retention vehicles in place for those managers Consider programs/practices/policies that engender loyalty to the Bank rather than loyalty to the employee s manager Respond quickly if attacked: consider counteroffers as well as legal remedies 5