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BEST PRACTICES IN HANDLING THE HR & REWARD ISSUES AROUND MERGERS & ACQUISITIONSPresenters• John Macdonald, FCIPD – Development and Reward
Solutions Associate, CIPD• Taisha Nurse – MCDermott• Barry Jones – SNC Lavalin• Caroline Parsons - WSP
WORKSHOP OBJECTIVES
Review what the “experts” have said about M&A best practices in handling the people issues
Hear first hand about the lessons learned from real life and recent M&A’s in the region
Share any other M&A experiences and lessons learned in the room
Co-develop a “blueprint” for addressing the people issues around any future M&A’s that you may be involved in
Context
Growth in M&A activity in MENA: 50% increase in value of deals between 2017-2018; UAE in top spot; Financial Services leading sector
(Source: Gulf Business)
Increased focus on the importance of non-financial metrics in measuring success of acquisitions
A growing realization that proper attention to the people issues will drive success or failure
So when does HR TYPICALLY get involved?
M&A phase Typical HR involvement
Target evaluation
Due diligence
Deal structuring
Integration planning
Integration implementation
Sources: various
What the experts have said about HR’s role...
“It is interesting to note that very successful dealmakers appear to involve HR in more aspects of the deal than others.”
“An optimized integration team will include representatives from the core functions: legal, tax, HR, IT, treasury and commercial.”
“For companies that rated their transactions as very successful, HR played a critical role in the area of cultural alignment”
Source: Canadian Financial Executives Research Foundation Report 2010
Source: Vintage Group: M&A Good practice and bad pitfalls 2015www.bakermackenzie.com
Due diligence considerations
Typically top considerations:
• Severance costs
• Retention of key executives
• Loss of other key talent
• Cultural incompatibility
Typically neglected considerations:
• Impact on employee relations
• Unwanted employee turnover
• Future pension and benefit costs
• Decrease in engagement and productivity
People challenges at the INTEGRATION phase
• Retaining key talent
• Impact on middle management
• Implementing workforce reductions
• Integrating compensation and benefits programmes
• Transitioning HRIS and Technology
• Communicating and managing change
• Leadership team selection
• Cultural alignment *
Source: PwC: “Talking about the people side of M&A” 2016
* “Sometimes the cultural challenges lie not in the cultures themselves but in managers’
inability to perceive a culture. That is managers may not understand how the
culture functions across the two organisations.”
More lessons learned……
“The companies that do it well are the ones that have dedicated integration teams, with a senior integration leader who has some gravitas within the company, who can really drive home the importance of the post-acquisition steps within the larger organization.”
“You must assess the target’s culture and how it relates to your company and how it will affect it. Helping people to identify the differences and change them is essential, and often overlooked”
“Decision making must be quick. You need to make decisions quickly as stalling can sometimes kill deals. It is often better to be quick — and sometimes wrong — than to wait for incremental information”
Source: Vintage Group: M&A Good practice and bad pitfalls 2015www.bakermackenzie.com
Key success factors in M&A
Planning
Engaging strong leadership and direction
Achieving early clarity of the organisation structure
Communication
Having a strong and clear “Day 1” message
Managing expectations and eliminating
uncertainty
Opening as many communication channels
as possible
Publicising quick-wins
Change management:
Training decision-makers in how to deal with
transition
Treating it as a major strategic project
Looking for positive change from the outset
Key success factors in M&A
Speed
Making the tough decisions early on
Integrating rewards and benefits ASAP
Integrating systems and technology ASAP
Culture
Bringing the combined organisation together into a single company culture
Focusing on where you need to go rather than where you have been
Turning cultural diversity into strategic opportunities
Facilitating early mixing
Talent retention
Finding the right incentives for retaining
key people
Adopting a staffing and selection approach that is
perceived to
Some local case studies
McDermott – two global players still coming
together – and a “spin-off” to add to the mix
SNC Lavalin – life on both sides of acquisitions with a
focus on systems integration
WSP – highly acquisitive engineering consultant
driving multiple entities into “ONE WSP”
One Team: One HR First steps: Strategic implementation plan
Talent Acquisition
Total Reward
Talent Management
Organisation Development
Mobility
HRIS & HR Analytics
✓ Grade and Job title mapping process
✓ Legacy acquisition salaried employees uploaded to legacy acquirer system
✓ Based on new titling structure, merit and bonus planning
✓ Global Headcount reporting enabled
Integration C&B Framework
Full C&B Review
MENA/APAC Survey
Global broker and benefits review
Leave policies review
Policy Re-development
ERP Integration
LESSONS LEARNING
• Constant communication via various channels underpinned by a developed Employee comms and engagement strategy globally.
• Comprehensive project plan of HR activitiesand allocating sufficient time to educate key stakeholders on implementation plan
• Prepare for constant change – adopting a culture that embraces the inevitability of change
• Educating and engage the HR teams on the ground – number one change agents and must be aware of the wider strategy
Integration of HR Systems
•How managers will access their employee’s information?
•Approval processes
•Difference between businesses, culture, regional work practices
•Areas of HR with links to systems i.e. corporate processes, policies, compensation & benefits
People Impact
•Different system architecture i.e. data formatting/dates
•what data is mandatory – are their gaps?
•Inconsistent/duplicated terminology
•Can the new HRMS completely replace the old?
•Integration with other systems?
System Impact
•The right project team both companies represented
•Meticulous planning and project management
•Engagement with other areas of business (IT, Finance etc.)
•Guidance from an experienced implementation partner
•Clear and regular communication
What’s Required?
16
Integration of HR Systems
•Review lessons learned with prior project team
•For geographically dispersed teams allow for regional holidays, differences in working days, time-zones
•Allow adequate time to data cleanse, test, upload, and to build and document integrations
•Provide opportunity for acquired to see new system being used instills confidence and helps conceptualize data preparation
•Consider collaboration between recruitment and HR teams: If both are users it will reduce potential data errors and improve efficiency
Lessons learned
•Acquirer can benefit from new functionality to cater for what acquired already has i.e. recruitment/onboarding
•Acquired benefits with access to functionality the acquirer already hasWin-Win
The integration journey
Culture
DISRUPTION
UNKNOWN
THEM & US
People
FEAR OF UNKNOWN
v
AMBITION
Employment Benefits
KNOWN BUT NOT UNDERSTOOD
USUALLY ON HOLD IN THE AQUIRED COMPANY
HR Involvement
LIMITED!
PRE-AQUISITION
The integration journey
Culture
DISRUPTION
HIGH UNCERTAINTY
THEM!
LANGUAGE MATTERS
People
FEAR SPREADS
POWER STARTS TO MOVE
CHANGE BEHAVIORS SHOW-UP
Employment Benefits
KNOWN BUT STILL NOT UNDERSTOOD
HR Involvement
MEDIUM TO HIGH
UNDERSTANDING CHANGE & CULTURE
EARLY -AQUISITION
The integration journey
Culture
DISRUPTION
REDUCING UNCERTAINTY
NEUTRAL LANGUAGE IS CRITICAL
LISTENING
People
UNCERTAINTY REDUCES
LEADERS ARE KNOWN
ADOPTION OR REJECTION
Employment Benefits
UNDERSTOOD
HARMONISATION IMPACTS KNOWN
WHAT, WHEN AND HOW KNOWN
EMPLOYEE’S INFORMED
HR Involvement
VERY HIGH
TECHNICAL EXPERTS
CHANGE MANAGERS
INTEGRATION
PERIOD
The integration journey
Culture
LANGUAGE IS “ONE”
LEADER BEHAVIOURS CRITICAL
MOMENTS OF TRUTH REVEALED
People
CHANGE BEHAVIOURS CONTINUE
RESIST OR ACCEPT PHASE
HYPER-CARE - ORIENTATION
ENGAGEMENT ACTIVITIES
Employment Benefits
MANAGING ALIGNMENT SIDE EFFECTS
BUILDING AWARENESS
LOOKING AHEAD AT SCALABILITY
HR Involvement
HIGH
POST – INTEGRATION
PERIOD
Key HR activities
Change Management
• HR Teams lead training on change management & culture alignment
• Senior Leaders also trained in change management
Set up HR Workstreams
• Pair workstream leads – give freedom to question
• Senior Leadership Accountability for delivery
HarmoniseBenefits & Positions
• Identify the best of both
• Communicate & Consult employees
• Personalize the details
M&A critical success factorsCultural
integration
Key employee retention
Synergy savings
Employee engagement
Communication
M&A: biggest hurdles
• HR being accepted as a strategic contributor
• Fear of the unknown
• Slow decision-making
• Active disengagement of staff
• Vulnerability of leaders
• Cultural integration
Overcoming hurdles
• Providing training to avoid surprises
• Holding change management sessions
• Open communication to support change management
• HR playing a key role in building 1:1 relationships with key leaders
• Bring people together often
• Visibility of leadership team
• Be prepared to adopt a flexible approach
• Take care with use of language (e.g. “us and them”)
• Get the right resources into the organisation structure as soon as possible
Blueprint for success
• Engage strong leadership and direction
• Make the tough decisions early on
• Involve HR at the earliest possible stage
• Pay meticulous attention to forward planning
• Establish the right mix on a project team
• Adopt effective project management techniques
• Manage expectations and eliminate uncertainty
• Be sensitive to different cultures
• Establish the right incentives for retaining key people
Blueprint for success
• Integrate compensation and benefits as soon as possible
• Integrate HRIS asap but be realistic with your timelines
• Communicate/ communicate/ communicate – with multiple media
• Stay aware of synergy targets and be mindful of loading additional costs
• Have a great onboarding/ orientation programme
• Celebrate successes and quick wins along the way
CIPD Compensation and Reward Management Course
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