If you’re considering a merger or acquisition, Total Rewards, in conjunction with the retention of essential leadership and talent, will prove critical to the success of the overall deal. These monetary and non-monetary elements of value for employees need to be explored early in the process and not something discussed after the ink is dry.
After all, you are putting lots of time and effort into the merger or acquisition, so you want and need top people to stay. The design and execution of the rewards packages will drive that retention after the merger or acquisition has taken place.
As an HR leader, you must have some type of approach in place for identifying possible roadblocks. Regardless, if you’re entering a merger or acquisition, you as the HR leader need to look at the current state of the company you are targeting or merging with, establish a future vision, and then figure out if there are any gaps and how to fill them.
Do Your Due Diligence
Entering into a merger or acquisition is risky territory, especially from a human capital perspective. If not done correctly, it can sabotage an HR leader’s ability to successfully implement the post-acquisition or merger, regardless of whether you are on the buyer’s side or the seller’s side.
When you are engaging in a merger or acquisition, the Total Rewards structure of the company you are acquiring or merging with can be significant. It may require some considerable adjustment, including replacing specific awards and re-calibrating the performance management approach to support the fully merged or acquired company.
Before purchasing a company or merging with another one, you should know how its compensation decisions are made and have a firm grasp of the company’s performance management system. Here are some key questions to run on for both a merger and acquisition situations:
- What metrics go into determining individual performance?
- Does the performance management system drive compensation decisions, and if so, how?
- How is the performance management rating system managed?
Taking the time to understand how the performance management system and incentive structures work together can net intel on company culture and any barriers that may exist to establishing a cohesive Total Rewards system.
This due diligence also includes uncovering risks, costs, and liabilities. As an HR leader, it’s critical to look at contractual agreements, executive compensation, benefits, retirement plans, and pensions, as well as outstanding loans. It also includes understanding how employees are paid, what they are paid, and how to provide good insight on a post-close plan.
When entering into a merger or acquisition, HR leaders should also look at:
- Annual incentives and long-term incentives before the purchase or merger
- Whether or not there are yearly bonuses and how those are paid
- How the target company funds its annual talent pool
Long-term incentives such as deferred compensation and equity compensations like stock options need to be examined as well.
It is also critical to understand how everything works regarding the administrative and record-keeping side of things. Sometimes these two functions require specific processes and technologies as well as outside vendors to make everything happen. This is important because there could be compliance issues and contractual agreements all parties should be aware of.
Slow and Steady Wins the Race
Leaders from both companies should not work in silos when entering large corporate transactions like mergers and acquisitions. The best approach is to be systematic and intentional about every step. If you make a mistake with people’s pay and benefits, it is a big deal, and you’ll lose instant credibility. You also run the risk of exposing your company to compliance and legal issues.
Mergers and acquisitions are exciting developments for all companies involved, and the future of many people is at stake. Don’t rush the process. Do your research and be smart about it. Ask lots of questions and think about both the short-term and long-term implications of Total Rewards. In the end, doing so will pay dividends.
Keep the Conversation Going with Tam Nguyen
Tam Nguyen is an international business management & human resources leader possessing expertise and technical knowledge in the areas of strategic human capital management and execution, including business strategy, global compensation & benefits, human capital performance and measurement, employment law, global mobility, and HR information systems integration and deployment to stabilization. Connect with Tam on LinkedIn.