Mergers & Acquisitions

Implication on Reward Management

H. V. Kothari
 Relevance
• M&A do not live up to expectation because they do
not address people issues. De-motivation of
managers and staff is the main reason. Insufficient
attention is paid to their needs and fears as well as
any existing imbalances between reward strategies
and remuneration levels of organization set to merge.
• Affect varies: 1) Holding Co. adopts hand-off
approach, leaving acquired Co. to run its own
business, in own way. 2) All terms and conditions of
employment are ‘harmonized’
 Merger & Acquisition check list
1. Executive Rewards: What should be approach to
Executive remuneration?
1) If single business- common framework developed. 2) If
diverse business different remuneration packages may
continue particularly with reference to salary & bonus
Check list regarding salary structure:
2. To what extent , should a common salary structure be
introduced? First , on the economics and strategy of each
business unit analyzed how far they conform. If business
case emerges, detail needed on a) existing salary
structures, organization structures ,policies & procedures
for fixing salaries
 Contd. – Check List
• b)any terms & conditions negotiated with staff associations,
trade unions , c) similarities and differences in work carried
out in each company and therefore type of people
employed.
3. What are the advantages and disadvantages of merging
salary structures?
Advantage: Common basis established which facilitates
movement and consistent approach to salary administration
Disadvantage: the disturbance and potential cost of
merging. Bearing in mind re-grading & salary increases.
 Contd. – Check List
4. If salary structure have to merged, how this should be
done?
a) A full job evaluation exercise involving re-benchmarking
b) The arbitrary slotting of jobs into the new structure
using job description
c) A compromise between a) & b), slotting in jobs without
a full evaluation if the fit is obvious , but evaluating
doubtful & marginal cases.
d) Using opportunity to adopt a new structure based on
job family models/ broader pay bands
5. When the merger takes place, should action be limited to
the creation of a common grade structure, defining
benefit levels.
 Contd. – Check List
Or allowing different salary scales to reflect regional
or separately negotiated variations in rates?
It is possible to have the above as long as differences
can be justified by reference to market rates.
6. What should be done about staff whose grade or
salary range is changed as a result of merging pay
structures?
If change does not work then ‘ red circle’ them and
give them ‘person to job holder’ grading and salary
brackets they retain as long as they are in the same
job.
 Contd. – Check List
General Salary reviews:
7.Should general salary reviews be centralized and take
place simultaneously in all location?
Yes, if common salary structure exists or pay is
negotiated centrally.
Performance Management:
8. How Performance Management is tackled in new
situation?
To what extent are there well established and effective
system and what is desirability of standardizing them ,
as opposed to allowing different systems to continue.
Ideally building on the best and bringing the best from
outside and framing PM as per business strategy.
 Contd. – Check List

Salary administration procedures:

9. Should standardized procedures operate throughout the
new group?
Depends degree to which centralization or
decentralization is to be adopted. In large organization
trend to centralize salary administration. Also trend
their for devolution of salary administration to line
managers.
10. Bonus schemes: Should different arrangements for
bonuses be allowed to continue?
Depends on decision as discussed above for executive
remuneration. But Designing principles and following up
with appropriate processes of governance have to be
done at organization level in any case.
 Contd. – Check List
Profit sharing schemes:
11.What should be done about profit sharing scheme
exists in one or other or both of the companies?
Depend on above decision of centralization or
decentralization . But opportunity exists for
introducing some new/ innovative schemes.
12. Pension Schemes- What should be approach to
pension arrangements?
While harmonization of all other elements is resolved
in 12 to 24 months, pension should be addressed in
longer time frame work. Expert advice should be
sought also taking into account pension legislation. PR
regarding It should also be handled carefully.
 Contd. – Check List
13. Other benefits: To what extent other benefits should be
harmonized?
A policy question: depend on philosophy of holding
company and circumstances in each company (the
degree to which their operations and their geographical
locations are linked and adjacent.
14. Trade Union or staff associations: If a trade union has
negotiating rights, how should they be involved?
At earliest possible stage following mergers and
acquisition, a strategy be developed for dealing with
trade union. Communication should be established.
Often trade union will press for early reassurances that
no employee will lose their job.
 Contd. – Check List
Therefore defining the messages( what can or
cannot be said ) upfront is critical part of shaping
necessary approach.
15. What should be the approach to employee
communication?
Immediately after Merger/ Acquisition , it is
necessary to determine and then manage
communications in most effective way .
Otherwise any communication vacuum will be
filled by all sorts of rumour, almost all of it
negative and potentially damaging.