HR-related issues can be the primary cause of failure for many merger and acquisition (M&A) deals. In fact, Cass Business School’s M&A Research Centre’s study, Successful dealmaking, published in December 2014, shows that HR involvement and key employee retention are among the main drivers of successful M&A deals.
Large M&A transactions result in the need to reconcile two (usually) different reward systems. As part of the study, M&A Research Centre conducted interviews with company executives and found that 93% of respondents believed that issues faced by the organisation post-deal could be resolved if HR teams were involved in deals and that an HR component should be included in the deal team as early as the targeting stage.
Understanding how employees were rewarded in the past and defining the objectives of the reward system that the employer should have following the acquisition is vital. A key guiding principle throughout this process should be the value proposition that the employer wants to offer to existing and potential employees because this affects the type of people that stay and join the organisation.
At one end of the spectrum of reward systems are those that offer relatively equal base pay, thereby promoting cooperative behaviour and job security. At the other end are systems that offer more varied pay, which reward individual performance and encourage a more competitive environment.
Therefore, the type of culture that is to be promoted post-M&A needs to be considered. The study found that the number-one issue cited as a contributor to the failure of a deal was culture; an area that HR would be ideally placed to judge.
Last but not least, the post-deal reward system should not only be in line with the overall strategic direction of the business but it should also be used as a tool to achieve key strategic goals. Irrespective of the type of reward system that is to be implemented, communication to employees is crucial. When people know what is happening, how and why it affects them, they are more willing to accept changes.
Dr Valeriya Vitkova is research fellow at the M&A Research Centre (MARC) at Cass Business School