Alan Shipman: Conflict over pension provision between this generation and the next
Mark Rowlands: Using psychology to maximise pensions auto-enrolment
Martin Landells: Higher accounting charge for sharesave (SAYE) plans
The importance of benefits and reward during M&As
Calculating the return on investment on healthcare benefits
Ways to reduce final salary pension liabilities
Weighing up fleet financing options
Making the most of multinational risk pooling
Employee rewards and benefits at Lloyd’s
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In this, the second of our quarterly reports on employee benefits, we focus on the key role that reward plays during mergers and acquisitions.
As many a finance director who has been involved in an M&A will attest, regardless of the workforce size or the money at stake, if you get the reward wrong the entire deal can fail. Frequently the value of an organisation is strongly tied up in the people who work there, and unless you can bring them with the deal, or keep them during times of transition then this value is lost.
Benefits and reward are known as hygiene factors. That is, by investing in them you don’t get major returns for your organisation, but by not investing in them you loose – or fail to attract – good staff, which has a negative impact on the organisation.
During M&As, benefits increasingly occupy employees’ minds, it’s a time for paranoia and comparisons, workers get touchy about losing out on any good offerings, and start to wonder if colleagues from ‘the other organisation’ are getting better benefits. Real or imagined, any degree of unfairness starts to eat away at normally very reasonable people.
So tackling the issue early with careful planning and communication is a must. In my experience, many employers look at introducing flexible benefits in order to smooth the differences between the two entities and thereby allow staff to stay on their current packages or switch if they think there is a better deal to be had. It largely puts the choice in the hands of staff.
The trickiest aspect, as always when it comes to benefits, is that of the pension. A huge expense with its own enormous costs and risks, this aspect of the reward package can scupper M&As before they get going. A large deficit or potential liabilities will affect the price of an acquisition and has led many a bidder to retreat feeling more than a little violated.
This pension risk has a crucial impact on business even when an M&A isn’t in the offing, which is why we decided to look at the various methods used by employers to reduce their final salary liabilities (see Slashing out-of-control final salary liabilities). An entire industry has grown up around reducing pension risk, each offering something different. Finance directors need to carefully work out which course of action is best for their employer in terms of costs, impact on workforces and market perception.
I don’t envy FDs who have to make these tough decisions, but make them they must in order to ensure their occupational schemes survive and future pensioners don’t land up with nothing at all.
Debi O’Donovan, editor