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- Highlighting employees’ pay and benefits package can help to bring a new organisation together.
- A reward audit should be the first stage of the harmonisation process.
- A flexible benefits scheme can help to harmonise provision, but replicating previous packages may still be tricky.
- A total reward strategy can be a particularly powerful tool.
- Employers must give fair warning if benefits are to change.
Case study: Integration no problem at Informa after acquisitions
Having grown significantly through acquisitions over the past 13 years and being the result of a merger itself, Informa has seen its HR and reward department play a key role in integrating businesses into its benefits package.
A vital part of the acquisition process is communicating with new staff. This is led by the chief executive of the division acquiring the business, with support from HR and the reward team. Thomas Humphris, UK reward director at Informa, says: “With a larger acquisition, we will run a reward show to tell new employees about our benefits. With smaller groups of staff, there will be a general presentation, followed by a one-to-one with the reward team. We have an incredibly comprehensive benefit package, so we usually find they are quite excited about what we offer.”
Some elements of reward are harmonised quickly, including the pension, where the previous scheme is closed and staff transferred to Informa’s pension on the same terms. Bonuses and commission are also brought into line quickly, so employees feel they are all working towards the same goal.
But because Informa operates as a series of independent business units, it is not necessary to move everyone onto identical terms. “There is plenty of variation across the business, for instance holidays can range from 25 to 30 days,” says Humphris. “But it does not cause any issues. Our package is flexible enough to allow for variation.”
Highlighting the total reward package for new and existing employees can smooth the integration process during a merger, says Sam Barrett
Reward strategy plays a key part in any organisation, especially one that is experiencing the upheaval of a merger or acquisition (M&A). Highlighting how staff will be rewarded and the benefits the employer is prepared to offer can help to bring the new organisation together.
Ashley Norman, partner at law firm Cobbetts, says: “Harmonising pay and benefits is usually a key objective after any M&A activity. Co-ordinating all internal HR procedures not only streamlines the process, it also improves staff morale and creates a sense of unity.”
But this is often a complex process. The first stage of harmonisation should be a reward audit, says Tim Johnson, managing director of employee benefits consultancy Gallagher Risk and Reward. “Go through both the new employees’ and your existing benefit package with a fine-tooth comb,” he says. “You will be surprised how many employers do not know what they offer.”
As well as taking pay, incentives and employee benefits into account, it is also essential to consider any other expectations the new employees may have. Nich Crowson, reward consultant at HR consultancy Independent, says: “Sometimes when employees are transferred, especially when they move from the public to the private sector, they will have an expectation of something that cannot always be offered in the new organisation.”
For example, public-sector staff may fear redundancy less than private-sector peers.
As well as comparing the two reward structures, it is worth getting a reality check on what is being offered in the open market. This will ensure an employer remains competitive, which can be important at a time when staff may feel unsettled.
This exercise should also take into account what the organisation wants to achieve. Leslie Moss, practice leader for human capital consulting at Aon Hewitt, says: “Think about factors such as how you want to be perceived as an employer and how difficult it is to recruit and retain employees. This can be reflected in the reward package you offer.”
Cost a major consideration
Cost is also a major consideration. Johnson says: “I have never come across an organisation that had unlimited budget and was able to harmonise reward upwards. Sometimes they have to leave some staff on these benefits rather than harmonise.”
On top of this, some benefits are more valued than others. For instance, Gary Luck, director of consulting services at Towers Watson, says decisions around providing a company car can be very emotive. “Staff can attach a lot of value to their company car, so it is essential to tackle this area carefully.”
But although there may be sticking points, many areas of the reward package can be brought into line. Ben Wells, senior consultant at Buck Consultants, says: “Many organisations adopt a long-term approach, making some changes such as switching benefit providers quite quickly, but looking to harmonise over three to five years.
“A flexible benefits scheme can be a good way to do this. Moss says he has seen employers introduce a flex scheme in response to a merger or acquisition. “It allows employees to replicate the benefits they had in the old organisation, making it much easier to deal with any number of different starting points,” he says.
This can also help to remove issues around holiday entitlement. For instance, if new staff have a lower holiday entitlement, a flex scheme could enable them to increase this by purchasing additional days.
Also, where the new employees have come from a smaller organisation, the choice available through flex can help them feel positive about their new employer.
Replicating benefits tricky
But even with a flex scheme, replicating some benefits can be tricky. For instance, if an employer buys part of a larger company, it might be hard to obtain the same terms for perks such as private medical insurance.
In such cases, it may be easier to take a financial hit. Mark Thompson, associate director at the Hay Group, says: “If someone has a particularly generous benefit, perhaps PMI or a final salary pension that could increase significantly in cost in the future, it may be easier to buy them out.”
However benefits are harmonised, a well-thought-out communication strategy can make or break a deal. Aon Hewitt’s Moss says: “The earlier [employers] communicate, the better, as it will help show they respect and value staff. Even if, under Tupe [Transfer of Undertakings (Protection of Employment)], employers cannot make any changes for 18 months, from day one employees will want to know what they are going to do in 18 months and a day’s time.”
This can also be a legal requirement, says Cobbetts’ Norman. “An employer is required to inform and consult with staff throughout the process.”
The consultation process should also include any union representatives.
As part of the communications strategy, a total reward approach can be particularly powerful. Gallagher’s Johnson recommends using total reward both before and after harmonising benefits. “By adding up the value of everything in the package, staff can see what they had in the old organisation and that, although there might have been changes, they are no worse off,” he says.
Employees should also be given fair warning if benefits are to change. For instance, if an employer is moving to different terms on maternity benefits, it is prudent to give at least 12 months’ notice.
But it is not always necessary to harmonise packages, says Johnson. “If it is a hardcore M&A business, offering a uniform benefits package is not that important. Everyone knows they are on something different. Running various [schemes] can cause administration issues, but does not cause problems from a staff perspective.”
- Harmonisation can take time, but some steps can be taken quickly.
- These help to kick the process off, signalling intentions to employees and helping to streamline administration.
- Where benefits are the same, it is sensible to move everything to one provider. It is easier to deal with one provider and an employer might also get a deal because of the increased size of the organisation.
- Among the benefits of being larger are lower costs on benefits such as pensions; enhanced terms such as improved underwriting for private medical insurance; and more opportunities for tailoring cover.
- Quick fixes can be made to areas such as when the holiday year starts and the terms relating to sick pay, especially as operating different systems across the same organisation can add administration.
- These changes are normally fairly straightforward. Although they are referred to in the employment contract, the finer details are contained in the staff handbook, which can be changed more easily.
Retaining key talent
There are usually key people who have a significant influence over how smoothly any integration goes, so it is important to have a strategy to retain these individuals, at least until the integration has taken place and knowledge has passed to the new organisation.
Ben Wells, senior consultant at Buck Consultants, says: “Identify who is key early on, ideally before the deal takes place. This makes them feel part of the new organisation. If they are ambitious, feeling valued by their new employer can be incredibly positive.”
Incentives, such as bonuses, are often used to encourage key staff to stick around. Gary Luck, director consulting services at Towers Watson, says: “It can often boil down to cash. A deferred incentive will help to tie these people in.”
Share options can help to lock key staff in for a few years. Tim Johnson, managing director of Gallagher Risk and Reward, says: “They are tax-efficient and the value of share options means the employee has a direct interest in looking after the company.”
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