Putting rewards to work in your M&A deal

Posted by Kenny MacDonald and Carey Ambrosetti on September 13, 2019.
Many companies are using mergers & acquisitions (M&As) to help drive corporate change and meet business objectives, but total rewards do not typically keep pace with this overarching M&A purpose. Companies most often concentrate on rewards as a Day 1 deliverable, something to be checked off the list to help ensure an effective transition for current employees, instead of using the opportunity to strategically review rewards against the desired goals for the go-forward organization. This practice could be leaving significant opportunity on the table when the deal is done. By elevating rewards to be a strategic enabler for change, companies can create a better opportunity to maintain employee engagement, achieve desired deal results, and position the go-forward organization for the future.

Employee rewards programs, including compensation, benefits, and other programs to incentivize employees, are typically the largest expense organizations face. This may be worth it if the returns are proportionately large, but for most companies, they don’t seem to be. Bersin’s High-Impact Rewards research found that only 3 percent of organizations rate themselves as “very effective” at optimizing their return on that spend1 This cost-to-value mismatch, along with the current competitive talent market and ongoing trends toward greater personalization of rewards and transitioning from rewards to relationships, makes a strong case for rethinking the approach to rewards in an M&A event. Many leading companies are already offering tailored rewards, by worker (who may not necessarily be an employee), by life stage, and by their organization’s cultures and values. Some companies are even making differentiated rewards a hallmark of their brand.

What’s often lacking in the current M&A rewards approach?
In contrast, a common approach to rewards in M&A has been to simply continue existing benefits and compensation programs throughout the events of the transaction without evaluating the strategic opportunities to leverage rewards as a change enabler. While the terms of the transaction may require certain programs to continue for a period of time after the transaction closes, opportunities may be missed to review rewards opportunities at Day 1 and beyond. It’s also common that existing programs are reviewed in silos, rather than holistically, with a focus primarily on big-ticket programs (retirement, health & welfare, bonuses). Companies frequently opt to go forward with the “richer” (and more costly) program so as not to take benefits away from any employees. With this approach, attempts to harmonize programs between the two companies can result in dis-synergies and higher costs, rather than the synergies and cost savings many transactions are meant to create. This can leave companies frustrated to find that ongoing rewards costs actually increase after the transaction.

The future state of rewards can be cost-efficient and leading edge
While aiming to ensure a seamless Day 1 is certainly critical, accomplishing that and designing the future state to make best use of rewards programs is more in keeping with M&A purpose and intent. What if it wasn’t a question of which benefit program (acquirer or acquired) to retain, but of asking what is the optimal program of the future? And what if you understood what the employee population wants and appreciates in terms of rewards so you could concentrate on the most highly valued offerings?

M&A is an opportunity to look at rewards holistically and strategically, and to create a new rewards program that takes both the go-forward organization and the employees into consideration and builds a strong relationship between the two. The rewards program you create can be—and should be—a point of differentiation for your organization, a powerful tool to access and engage your workforce. One of the surprising things many companies find when they start to examine their rewards programs is how many are underused and underappreciated. BersinTM research found that rewards programs can actually result in a negative net promoter score (-15)2—meaning that rewards programs actually detract from employee loyalty. How can this be acceptable?

Why guess when you can know?
Instead, companies should consider taking a data-driven, consumer-grade approach to making rewards decisions and consider employee preferences and needs as an additional input into the design of future programs. Rewards optimization can provide the clarity and actionable insights needed to make decisions on the overall design of the go-forward organization’s rewards program.

Conjoint analysis, an advanced survey technique that forces trade-off decisions, is used in the rewards optimization approach to provide the insight into employees’ everyday concerns and the rewards program features that are most or least important or valuable to those employees. Combining this workforce insight with employer cost and competitor benchmarks can lead to the most optimal future program design. Our experience shows that rewards optimization data analysis can yield reward packages that the vast majority of employees (frequently 70–80 percent) prefer over their current package for the same (or less) cost.

Putting rewards back on the table—sooner!
With so much going on during an M&A transaction, there can be reluctance to add more items to be addressed. But delaying strategic rewards discussions until after the events of the transaction also tables significant potential to capture the maximum deal synergies related to rewards programs. At the same time, you could also miss out on opportunities to establish deeper relationships with employees and better manage turnover in an otherwise high-turnover event. Why not be as strategic about rewards as you are about other aspects of the M&A deal?

Start by asking…

  • Do we have disparate legacy rewards programs? How can we design a harmonized program to better meet the needs of the new organization?
  • What differentiators does our total rewards integration strategy include that will keep our critical talent from walking across the street to take a similar job with a competitor?
  • How does our total rewards program support the culture we are trying to achieve?
  • How should our total rewards offering evolve to meet the needs of the employee profile that will support business strategy and growth?
    Addressing these questions can give you an edge in both controlling costs and accessing and engaging the workforce that will carry the new organization forward.

Kenny MacDonald is a principal in Deloitte Consulting LLP’s Mergers and Acquisitions offering, helping companies make critical business decisions in globally complex M&A situations, through the human capital lens.

Carey Ambrosetti is a senior manager in the Human Capital practice of Deloitte Consulting LLP, assisting companies with the people-related challenges of large rewards transformation projects and M&A transactions.

1Seven Top Findings for Redefining Total Rewards, BersinTM, Deloitte Consulting LLP / Pete DeBellis and Anna Steinhage, PhD, 2018.
2Bersin, Deloitte Consulting LLP, High-Impact Rewards survey, 2017.

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