Aon’s move to honour WTW-related retention bonuses ‘right call’ as war for talent rages
Aon’s willingness to pay its employees retention bonuses originally developed as part of the now defunct Willis Towers Watson (WTW) acquisition could quickly pay dividends in the context of an extremely competitive war for talent in the sector, according to analysts.
The bonus scheme was originally conceived in the context of the now scrapped $30 billion merger between the two firms, which was abandoned by Aon at an estimated cost of $1.4 billion.
In a report examining the consequences of the deal being binned, Meyer Shields, an analyst with KBW, described the move, revealed by Aon CFO Christa Davies, as the “right call” in what he called as an “environment of particularly elevated demand for talented (re)insurance professionals”.
He noted that Aon president Eric Andersen has emphatically disputed any suggestion of disruption in the context of the failed merger, something he suggests was in response to a comment by Marsh & McLennan CEO Dan Glaser who noted that recent hiring from Aon and WTW was “three times higher on a net basis than it was in the 15 months prior to the announcement”.
Shields noted that institutionalizing client relationships is one of Aon’s strengths, but also warned that many of Aon’s competitors remain willing and able to pay up for brokerage talent.
He also noted an element of surprise that Aon CEO Greg Case said it terminated the plans because of challenges from the US Department of Justice, notwithstanding progress with other regulators, including the European Commission.
He suggested that Aon was willing to terminate the deal – and pay the $1 billion breakup fee and $350-400 million of other termination-related expenses – because it was unwilling to either divest enough of its large account P&C and employee brokerage businesses to immediately satisfy the Department of Justice, or to pursue a time-consuming legal remedy that could have postponed the deal until 2022.
Shields said he understands the latter point, since persistent employee attrition during an extended period of uncertainty means that even if Aon had won the legal challenges, what it won would have probably depreciated in the interim.
But he said he was surprised by the former argument, since he believed that Aon’s management would have been able to create significant value (including both revenue and expense synergies) even by buying “only” net WLT revenues of $6 billion.
But he suggested: “It’s entirely possible that the DOJ’s definition of large account businesses was much bigger, or was much less receptive to potential divestitures, than previously believed.” He said he doesn’t think Aon abandoned the deal “thoughtlessly”.
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