New Member Promotion >>> Save $15 and get a SHRM tote!
Giving applicants with criminal backgrounds a fair chance at employment can be good for business.
Plus all the HR resources you need to be more efficient and effective this fall!
Apply for the SHRM Certification Exam and begin advancing your career.
Learn how to make the business case for diversity, October 25-27.
The closing of a merger or acquisition is a time fraught with uncertainty for employees of the companies involved. Because of this, managing the transition of employee benefit programs effectively becomes very important in easing the way for the newly combined company.
“The first 100 days following the closing are critical,” said Phyllis Beasley, regional director of Symphony Corp., a medical technology company based in Chicago. “There is a lot of communication to be done, new benefit offerings to develop, union issues to resolve. For a year following the deal, you're going to have continued benefit issues.”
These challenges extend beyond health and welfare programs, Beasley noted. Everything from employee contributions to retirement plans to vacation allocations needs to be addressed. The level of difficulty involved “depends on how different the acquired company’s programs are compared to the new company,” she explained. For example, if one company was generous with paid time off and allowed employees to bank that time and the other didn't, “these issues quickly become very personal for employees.”
It Starts with Due Diligence
Companies should examine benefit plans during the due diligence process before the deal closes. In addition to the usual financial and regulatory scrutiny benefit plans undergo during this phase of the process, due diligence can be used to begin planning transition activities related to benefits. “The more that you know about the company benefit programs that you are acquiring early on, the better prepared you are to make sure that you have the funding to manage the transition and communicate the changes,” said Beasley.
When KPIT Cummins Infosystems Ltd., a global manufacturing technology provider based in Pune, India, undertakes an acquisition, it begins managing benefit issues early on. “We look at their benefits, policies and processes and conduct an internal mapping of those elements,” said Sachin Tikekar, the company’s chief of people operations. “Part of picking the right company involves identifying gaps in benefits and policies and the challenges in dealing with those gaps.”
The first element of this mapping involves commonalities within the benefit programs. “These are something employees of the acquired company can relate to,” said Tikekar. “We look for programs that we can adopt from the acquired company to reinforce the fact that the new employees joining us through a merger or acquisition are important to us.”
Where no commonalities exist between KPIT Cummins and the acquired company, Tikekar and his team focus on what steps they can take to offset necessary changes. “If there is a gap (between what employees had before the deal and what they have after the deal), employees may not see change as positive or could see their benefits being diluted,” he said. “It is a good policy to be upfront about changes and to give everyone enough notice. Implementing those changes over a period of time can make those changes easier to absorb.”
For example, when KPIT Cummins acquired three companies over 18 months, each deal came with different implications for benefits. “Bringing everyone onto a single plan proved to be a challenge,” said Tikekar. “In this case, the gaps were so wide and different that we did not have a solution to bridge those gaps.” Therefore, instead of bringing all employees onto an existing plan, the company decided to create new benefit plans for all employees of the expanded company and transition everyone to the new plans within a year after each deal closed.
Some elements of the benefit program require more time to reconcile. For example, vacation policies in an acquired Indian company will be phased in over two years as the company deals with the local laws regarding vacation time requirements.
--------------------------------------------------------------If benefit gaps are wide, the company might decide totransition all employees into new plans.--------------------------------------------------------------
Managing the Changeover
Technology and administrative issues are critical. When real estate and relocation company Cartus Corp. acquired Primacy Relocation in January 2010, the HR project team was able to get Primacy employees integrated into the Cartus system in less than a year. The driving force behind this quick integration was the need to get the new employees on the Cartus platform to help them feel like a part of the company and to assuage concerns about job security, career paths, reporting relationships and other HR issues, according to Rosemary Butterly, Cartus’ vice president of HR. At the same time, Primacy’s HR outsourcing vendor contract was approaching expiration, which lent another element of urgency to the transition.
Cartus conducted an in-depth analysis of every benefit offering by country and by legacy company to identify how the benefits and HR processes of each company differed. In order to maintain the feeling that the deal was more of an integration or merger than an acquisition, Cartus involved HR and benefit professionals from Primacy in this process. Paid time off was the biggest concern among employees, so Cartus provided a comparison of both companies’ paid-time-off policies and information on how the company would handle the transition from the Primacy program to the Cartus program by year-end.
In addition to managing the transition based on specific HR tracks, such as benefits and payroll, the company ran parallel projects to manage the transition to separate platforms in the geographic regions for the company’s global operations. All of these efforts had clear objectives, milestones, budgets, roles, responsibilities and timelines.
Communication Is Key
Communication is essential to a successful post-deal benefits transition. The amount of communication depends on the level of changes involved. If companies leave benefit programs largely as is, there is less to communicate. If the company is pursuing full integration where benefits differ significantly following the deal closing, it will need to invest in strong planning and communication.
Following the Cartus/Primacy deal, Cartus used a combination of communications to keep employees abreast of developments, including newsletters, e-mails, podcasts, a dedicated telephone hotline and talking points to be emphasized by the company’s leadership. “We started communication around February or March (following the January deal close) with information on the acquired company and the timelines for changes,” said Butterly. “We were ready to begin open enrollment in September.”
Joanne Sammer is a New Jersey-based business and financial writer.
Be a Master of Mergers and Acquisitions, HR Magazine, June 2010
Employee Benefits Can Spring Costly Surprises in Mergers/AcquisitionsSHRM Online Benefits Discipline, January 2008
M&A Deals: Stock Options and Severance Agreements, SHRM Online Benefits Discipline, February 2005
Dealing With Employee Benefit Issues in Mergers and Acquisitions, Legal Report, March-April 2000
SHRM Online Benefits Discipline
• Sign up for SHRM’s free Compensation & Benefits e-newsletter
You have successfully saved this page as a bookmark.
Please confirm that you want to proceed with deleting bookmark.
You have successfully removed bookmark.
Please log in as a SHRM member before saving bookmarks.
Your session has expired. Please log in again before saving bookmarks.
Please purchase a SHRM membership before saving bookmarks.
An error has occurred
Recommended for you
Choose from dozens of free webcasts on the most timely HR topics.
SHRM’s HR Vendor Directory contains over 3,200 companies