Issue #7 — October 2005
M&A: How
Total Rewards Can Help Capture the Value of Your Deal
As M&A transactions play an increasingly
important role in growth strategies, executives are placing greater
emphasis on employee rewards as a factor in deal success. Before,
during, or after the transaction, executives are identifying important
people issues:
Our company is entering
new markets with a new business model and we need to
reorganize/restructure.
We need to drive
innovation or improve customer relations to spur revenue growth.
We need to align
our employees’ goals and motivation with our new business imperatives.
We need
more predictability and control in our compensation and benefit costs.
Our employee commitment
is slipping.
We have flight risks
with our critical talent.
As most companies with M&A experience will
confirm, getting the people issues right on the front end is critical to
capturing the value of the deal. “Total Rewards” is all about people,
performance, and cost. Companies that adopt this approach to their pay,
benefits, and career programs are in the best position to maximize
employee contributions and satisfaction, manage costs, and add value to
the business.
What is
Total Rewards?
Traditionally, compensation, benefits, and
career programs have been managed separately, with few tools or
methodologies to understand their interrelationships. Today,
strategically oriented companies are adopting a comprehensive approach
to these programs. And an M&A transaction can serve as the springboard
to a thoughtful reconsideration of how these programs are designed and
managed, which can deliver real value to the post-closing company.
In Mercer’s view, Total Rewards is an
integrated approach to compensation, benefits, and career development
programs that leverages the employer’s investments by ensuring that
programs are aligned to support the new business while continuing to
meet employees’ important priorities. Both objectives must be
accomplished at a cost that is affordable and sustainable.
What does a Total
Rewards strategy provide in an M&A transaction? Fundamentally, it is a
framework for management decision making about human capital programs.
In the short term, it establishes the business case for change and
articulates the guiding principles for post-closing HR programs,
specifying how each plan will be designed and delivered within the
desired cost structure. Longer term, a Total Rewards strategy
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strengthens
employee commitment and engagement; |
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facilitates
talent attraction, retention, and deployment; |
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reinforces
the organization’s desired cultural attributes; and |
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delivers a
predictable, sustainable cost structure. |
Three key
perspectives
Mercer’s proprietary Total Rewards
framework brings together these three key perspectives: employer,
employee, and cost.
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Employer Perspective. Our
extensive research and client-specific fact finding helps the
post-closing company assess the competitive environment,
critical success factors, talent requirements, and cultural
attributes needed to support business success (that is,
knowledge, competencies, and behaviors).
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Employee Perspective.
Employee focus groups and specialized surveys help capture the
employee perspective, identifying critical information about
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the level of
importance and satisfaction that employees attach to each
component of current rewards; |
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reward
components that can strengthen employee engagement and
commitment; |
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the
perceived value of each rewards component versus its actual
cost; and |
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gaps between
employees’ perceptions of the company’s current cultural
attributes and the company's desired cultural attributes.
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Cost Perspective. Internal
and external benchmarking identifies critical reward program
information to determine a reasonable and sustainable level for
reward costs today and in the future. Cost benchmarking also
provides useful insights about whether a company should reduce
cost and, if so, by how much. |
Each of these three perspectives is
important and needs to influence the programs a company sponsors. But an
optimal rewards strategy can result from a balanced response to these
three perspectives’ competing demands.
Total
Rewards as a total solution
In an M&A
transaction, where an entity’s near-term survival depends on meeting
financial goals, Total Rewards enables the post-closing entity to use
its limited investments to maximize outcomes during the critical launch
phase. And to keep pace with changing business conditions and the
organization over time, it supports decision making about design and
delivery of individual plans.
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To learn
more about Total Rewards in the M&A context, listen to the
replay of the
web briefing of the same name from 28 June.
You’ll hear how one company, Arkema, used Total Rewards as part
of its business strategy following divestiture to assure both a
strong balance sheet and committed, high-performing employees to
facilitate its growth as an independent company.
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Mercer
gives no representations or warranties as to the accuracy or
completeness of the information contained in this e-Bulletin. As each
situation is different and the advice strategies are often tailored to
the applicable circumstances, you should have your counsel and your
accounting function review the current regulations and the advice
strategy before you implement it. |
