Article: Employees and change: Managing employees during M&A processes

Employee Relations

Employees and change: Managing employees during M&A processes

With a special focus on India, Mark Oshima, Managing Partner and Sharad Vishvanath, Regional MD & Partner from Aon Strategic Advisory talk about the challenges that an M&A process creates for HR professionals and how can one overcome them.
Employees and change: Managing employees during M&A processes

Business markets have recently witnessed multiple mergers and acquisitions, both on a global and a national level.  With examples ranging from recruitment giants like Randstad and becoming one, Microsoft acquiring LinkedIn to the rapidly evolving startup ecosystem in India, HR professionals are today being increasingly tasked with the duty of managing employees across geographical areas in times of a business merger or acquisition.  Following is an excerpt from an engaging conversation with Mark Oshima, Managing Partner, and Sharad Vishvanath, Regional MD & Partner, Aon Strategic Advisory that seeks to address some of the issues HR professional's face in times of change.   

Q. Mark, given your experience and expertise of looking at markets across the globe, what are some of the pertinent challenges that you see that HR professionals face when it comes to people management during M&As?

Mark (M): People in charge of transition processes often face multiple challenges today. In light of the different management styles being practiced by the different companies, a major part of the role that HR professionals need to play today consists of creating uniform policies for issues like structures, job roles, modes of compensation, employee training, and career goals. The primary challenge for HR is to assimilate successfully the different work styles and culture and create a new system that works well for the entire organization moving forward. 

In addition to this, to make any transition process successful, HR needs to ensure that a proper communication channel is established, allowing the organization to share information and details of the M&A with their employees. We often see that organizations undergoing a merger focus on communications, which is crucial. However, the mistake they make is in the way they convey information. More often than not, they decide to take all of the information they have and dump it on employees, expecting it to be enough for employees to understand the implications that the transition process will have on them. HR leaders need to know that it is not about just providing employees with the right kind of information, but rather about forming a leadership connection. Employees need to understand who their leaders are and whether they actually care for their employees.  A weak connection between the workforce and the leadership transitioning in can lead the workforce to second-guess the leaders and, at times, to high attrition.

Q. Sharad, for the problems that Mark just pointed out, how much of it is pertinent for the Indian markets?

Sharad (S): Within the Indian market, one finds that the challenges are similar but to varying degrees. This also stems from the fact that the markets in the West are more mature, while in India, companies are still learning from their mistakes.  Within India, if I were to look at aspects of people retention, the tendency is to say that the brand name would be sufficient to retain employees. The thought within most Indian companies is usually that retention during such M&A processes would either happen because of the brand or can be done by creating time bound aspects. But the fact has remained that this has not yielded the best results on retention. It, therefore, becomes important for HR professionals to look at retention programs differently. For example, we see an increasing acceptance by clients to use KPI-led retention plans, with an upside on achieving stretch KPIs – something we define as “Pay to Play” retention programs, as compared to traditional “Pay to Stay” retention programs.

One key aspect that should be stressed in parallel is that HR professionals have to play multiple roles during this period, all within the same timeline.  As an HR leader, one needs to break down the problem and identify the imperative business deal goals that would impact employees the most. Dealing with such issues on a priority basis would help HR professionals to follow a systematic route of people management, rather than putting out fires as and when they come. 

More often than not, employers decide to take all of the information they have and dump it on their employees, expecting it to be enough for employees to understand the implications that the transition process will have on them. HR leaders need to know that it is not about just providing employees with the right kind of information, but rather about forming a strong connection with the leadership.

Q. What would you suggest are some of the effective ways that HR professionals can ensure that the communication levels are seamless across the organization?

M: When organizations undergo merger or acquisition processes, it is important that the strategic rationale behind the deal be communicated to the employees to build their trust and ownership in the process.  This is important so that people understand why the deal was done. It also becomes important to help employees to understand what’s in it for them. Employees usually only hear the company’s side of things and often miss out their incentive to be a part of the process. This consequently affects their motivational and engagement elements, so it is critical to convey the entire information in completion.  This also ensures that employees have a context to the changes that are happening around them. 

Beyond this, the information that should be communicated to employees can be put in the form of a pyramid. At the bottom of the hierarchy lies safety and security. Answering critical questions like ‘do I have a job?’ ‘what will my job entail?’ and ‘can I ensure that I will be gainfully employed?’ becomes an important job for HR professionals. Once their basic queries are answered, employees need to know more about their current and future work structures. This consists of conveying details on compensation, management, and role within the organization. And ultimately, at the top of the pyramid are questions like ‘how do I advance?’, ‘what is my career aspiration?’, ‘how will the change in the organization allow me to advance in my career and affect my personal goals?’. When you communicate to the employees, you need to keep these things in mind and look at the situation from the employees’ perspective.  HR professionals need to answer the questions they can, and for the questions that they can't, they should set up processes through which they might obtain the answers. Building trust through communication is crucial during these times. 

S: The point is also around how you communicate. From my experience, communication that comes directly from the managers (either formally or informally) has a far higher impact in terms of believability than communication that comes from the CEO, which is less frequent. This is especially true for the APAC region – in this region, it is particularly important to have a strong leadership connect. When there is communication, all channels should be explored. HR professionals need to ensure that the managers are given their talking points and are briefed properly so that they don’t set the wrong expectations. And demographic details of the workforce should be taking into account when conveying any M&A related information. Tools of communication should be chosen according to your demographic set up of the company. For example, we increasingly see social media, organization intranet and social platforms being used as channels of communication.

Q. What are the challenges that HR professionals face specific to the compensation aspect of M&A? What do you think are some of the solutions to that?

M: HR plays a vital role in bringing together two varied sets expectations and processes to create a unified approach to people management across the final entity. And a crucial component within this relates to employee pay. Aspects like compensation, benefits, retirement, variables and long-term incentives (LTIs) are vital options available with HR professionals to manage and incentivize talent. One of the safest methods during this period is to create a culture where the employees are paid for their performance. Rather can creating an ambiguous  reward mechanism, building a clear productivity driven approach helps  HR professionals build a proper transparent rewards culture within the organization. This gives an incentive to employees, still unsure of their future, to realize that the company is still standing behind the employees. The upside is that the pay is higher for good performance, which also motivates the employees.

S: From a Total Rewards perspective, looking at the complete picture and taking preemptive measures becomes critical in ensuring that employees are seamlessly on-boarded into the new process. It is a vital tool to set the right expectations and ensure transparency. For example, we were advising two companies that came together in India, and there was a disparity in both their fixed pay as well as LTI structures. The two companies had huge disparities over pretty similar job portfolios. We knew immediately that post-integration there would be a massive issue, and it needed to be addressed. It, therefore, becomes critical for HR leaders looking at rewards integration to do so by looking at the structure as a whole. Once the complete picture is taken into consideration, HR professionals would be capable of making the right compensations decisions that retain talent while staying within budgetary guidelines.   

Within India, the tendency is to say that the brand name would be sufficient to retain employees. The thought within most Indian companies is usually that retention during such M&A processes would either happen because of the brand or can be done by creating time bound aspects. But the fact has remained that this has not yielded the best results on retention.

Q. What are the skills that you would want for HR professionals managing such transformation processes to develop?

M: I think the job of an HR professional is more difficult today than it ever has been. Part of that is due to the wide range of skill sets that are required. What they require today is what we call integrated thinking to distributed problems. Problems are distributed throughout the organization and yet one needs to be able to think about them in an integrated and synthesized way. There needs to be a system of thinking that helps HR professionals create people management processes, especially in times of M&A.  In addition to this, HR professionals need to understand the financials of the takeover deal. They need to understand the deal model and the financials involved in order to understand its impact on employees and people management processes better. They should be able to translate the change they envision creating into hard monetary terms. Only then can they create a good buy in from business heads and allocate the right budget for such initiatives. 

Finally, they also need to have great influential skills. Once they translate the economics of the deal into how it affects people, influencing their senior leaders and their managers to pay attention to the changes that they intend to make becomes vital. It at times requires HR professionals to be better salespeople. This is because they need to be able to influence people who are extremely busy to sit down and focus on looking after their employees.  HR professionals need to have good influencing skills to ensure that managers and senior leaders focus on crucial aspects like maintaining employee morale and motivation levels. 

S: The only thing I would like to add, which is very relevant to India, is that HR professionals need implementation skills that span over medium- to long-term periods of time. By this, I mean that any M&A process is a two or three year journey and not a six-month exercise. The plan creating new management policies should also be aimed at addressing vital long-term issues. The ability to strategize for the long-term helps HR professionals to build contingencies and budget accordingly. In times of mergers or acquisitions, putting capital to the right use becomes an even more pressing business reality. For this, HR professionals need to have long-term plans in place. In addition to this, the ability to multi-task becomes a fundamental skill that HR professionals would need when an M&A process is being undertaken. This becomes crucial in India as most companies do not have dedicated HR professionals who look at the M&A processes.

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Topics: Employee Relations, #MergersAndAcquisitions, #International

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