Why Human Capital Strategy Must Lead M&A

Human capital decisions can determine whether an M&A transaction preserves critical capabilities, retains leadership, and converts deal rationale into sustained enterprise value.

Mergers and acquisitions (M&A) are returning to boardroom agendas, but the market remains dynamic. Aon’s 2026 Transaction Solutions Global Claims Study found that North American M&A activity began improving in the second half of 2025, driven largely by higher-value deals. However, middle-market transactions continued to face headwinds, including geopolitical uncertainty and valuation mismatches.

This context matters. Transactions pursued during periods of volatility often carry heightened execution risk: Leadership teams may be stretched, employees may be uncertain about the security of their roles, and legacy compensation programs may not align with drivers of deal value. Human capital strategy should therefore be treated as a core deal workstream, not a post-close cleanup item.

The board should not manage every workforce decision, but it should ensure that management has a disciplined approach for identifying talent risks, aligning rewards with deal objectives, communicating with employees, and resolving governance issues before they become closing or integration problems.

A Framework for Board Oversight

A useful way to organize oversight is to view M&A human capital planning across the following four connected phases.

Foundation. Before a deal is on the table, management should establish its playbook for talent, rewards, communications, and governance approvals. Boards should ask the executive team which roles, capabilities, and cultural attributes are most critical to enterprise value and how they would be protected under different scenarios.

Deal planning. When a deal is possible or under review, management should stress-test the workforce plan against the specific transaction. Directors should probe whether diligence has identified key employee populations, compensation and benefit liabilities, executive agreements, equity treatment issues, and integration dependencies that could affect price, timing, or value realization.

Transaction. After signing a deal and before it closes, management should finalize decisions that need to be communicated or implemented when a transaction closes or shortly thereafter. Boards should confirm that a clear communication plan and cadence for updates are in place.

Integration. After a deal closes, the board should monitor whether the human capital strategy supports the investment thesis and reinforces the combined company’s priorities.

Executive Compensation

Executive compensation is most visible during the transaction and integration phases, but oversight should begin in the foundation and deal planning phases. Before a deal is public, directors can help management consider how the compensation philosophy may need to evolve relative to the transaction. As information is shared between companies, management should test whether existing pay levels, peer groups, incentive metrics, award vehicles, and performance goals remain appropriate for the combined company.

During the transaction phase, the compensation committee should distinguish between decisions needed when a deal closes and those better deferred until the two companies integrate, when the combined strategy is clear. The goal is not simply to re-benchmark pay; it is to ensure leadership incentives support the value creation plan underlying the transaction.

Talent Retention

Retention planning should begin in the foundation and deal planning phases, with a clear view of which employees and teams are essential to the transaction thesis. Retention strategies may include employment or consulting arrangements, retention awards, continued equity participation, integration incentives, or customized arrangements for key individuals.

During the transaction phase, the board should test whether the retention program is focused on the right populations and calibrated to its expected value by working with management to evaluate key roles and better understand market competitive pay for these positions. Directors should also ask whether the total rewards package is compelling enough to retain the people needed to execute the company’s strategy. In the integration phase, retention metrics should confirm whether critical talent is staying.

Equity Conversion

Equity conversion analysis should begin in the deal planning phase, even if final decisions are made during the transaction phase. Vested shares generally receive the same transaction consideration as other outstanding shares, while unvested awards require analysis under the plan documents, award agreements, and deal agreement.

Performance awards can be particularly challenging as metrics may need to be adjusted, modified, or settled as the business, budget, and strategy change. Boards should ensure management reviews equity treatment early enough to avoid rushed decisions before a deal closes and support communications through the transaction and integration phases.

Change-in-Control Obligations

Change-in-control obligations should be reviewed in the foundation or deal planning phases, before a transaction is announced. Many executives are protected by provisions that provide severance, equity acceleration, or other benefits after a qualifying transaction and, in many cases, a qualifying termination. Early review helps the board understand costs and governance optics.

Addressing these issues before the transaction phase gives directors and management more options to evaluate the implications of termination and payment provisions. The company may be able to clarify ambiguous terms, evaluate legacy arrangements, understand potential excise tax exposure, and communicate compensation outcomes while minimizing surprises for all parties.

Human Capital as a Core Deal Component

Successful M&A transactions are not driven solely by financial modeling, operational synergies, or strategic rationale. They also depend on successful talent management. Boards can strengthen their human capital oversight by asking fundamental questions at each phase of the deal: What people-related decisions are most likely to affect value creation, and how prepared is management to make those decisions at the right time?

Organizations that treat human capital planning as a core component of M&A strategy are better positioned to preserve talent, accelerate integration, and realize the full value of the deal.

The views expressed in this article are the authors' own and do not represent the perspective of NACD.

Aon is a NACD partner, providing directors with critical and timely information, and perspectives. Aon is a financial supporter of the NACD.