Need to know:
- Mergers and acquisitions have the potential to disrupt an organisation’s culture, and employee benefits can help to bring employees together.
- But handled badly, or where benefits are reduced, can have a negative impact on morale.
- Engaging employees with any changes and clear communication are essential.
Arguably the challenging element of any merger or acquisition (M&A) is integrating the two disparate corporate cultures, to create an environment in which employees, and ultimately the business itself, can thrive and flourish.
Often, issues arise due to a lack of clarity, says Jenny Hinde, chief people officer at Personal Group. “An organisation that states it will take the best of both worlds but then imposes the acquirer’s values rather than creating a new set of shared values will create confusion,” she says. “Equally, during a merger there is a real risk of devaluing both organisational cultures, so focus is required to identify the commonalities as well as the differences, and carve a pathway to a shared culture.”
Organisational values
Employee benefits have the potential to help in such situations, by providing employees with a common set of measures that can help them feel part of the new organisation. Lucy Delaney, managing director in the people and transformation practice at FTI Consulting, explains: “In an M&A, benefits quickly become more than perks; they become cultural signals.
“Employees interpret them as reflections of what the new organisation values. Retaining, modifying or removing benefits, especially those tied to flexibility, family-friendliness or autonomy, can have outsized meaning and send powerful messages about the [organisation’s] future identity and ways of working.”
Certain benefits can go some way towards implementing a new culture, says Hinde. “In terms of engaging employees in a new world, benefits can be powerful in providing positive early experiences where benefits enhance the reward package,” she says. “Core benefits that fundamentally affect culture include the approach to family leave; maternity, paternity and carers policies and pay; flexible working and the investment in pensions.”
Benefits review
With this in mind, an M&A can provide a good opportunity to review benefits provision, says Sean Westwood, employee benefits team director at Mattioli Woods. “The type of benefits [an employer] offers will depend on who [it] wishes to attract,” he explains. “Younger employees often wish to be aligned to environmental, social and governance (ESG). Bike-to-work and electric [car] schemes are, therefore, what they expect from an employer. Where the pension default fund is invested is another focal point.”
Engaging with employees is vital in identifying what really matters to them, says Emma Woodhead White, director of consulting and co-owner of Kin&Co. “This can help to establish how employees feel about the current benefits and which ones are most valued,” she says. “It may also reveal what new benefits could be introduced that could provide a positive lift and reassurance to the workforce that the future is positive and worth staying for.”
Yet, at the same time, there is also the potential for benefits policies to have negative consequences. “Behavioural science tells us that people react more strongly to perceived losses than gains,” says Delaney. “Removing a benefit, especially one that doesn’t carry direct cost, can destabilise trust, especially if it disproportionately affects certain groups in the workforce. For example, taking away flexible hours might inadvertently make the environment less workable for people with caring responsibilities, or for those who relied on that flexibility to stay and succeed.”
Any reduction of benefits will have a negative impact unless there is a very clear and positive trade-off, says Hinde. “For example, removing a discounts platform that has high usage would impact on the culture,” she explains. “However, if it was replaced with a bonus scheme that was more generous holistically, the impact can be mitigated.
“My experience tells me that it is often the benefits that are non-financial but have an emotional connection that have the most detrimental impact: the annual staff party or a valued peer-to-peer recognition scheme, for example, are often considered less important by decision-makers but surprise with the noise they create.”
Harmonisation of benefits
One way in which benefits can be impacted by an M&A is where there are different provisions between the two organisations, with the new entity having to decide whether to maintain these or seek to harmonise them.
“Employers can take a path of least resistance by keeping benefits separate or integrating them into the same scheme but keeping different legacy categories,” says Westwood. “The latter will have no impact to employees but could save the employer on premiums. They should think about what new hires get; the same as their predecessors in each employer or the same for everyone going forward? There is the option to harmonise benefits for all existing and new employees, with consultation likely required for existing employees.”
Transfer of Undertakings (Protection of Employment (Tupe)) legislation applies here, so it is important to seek legal advice.
Harmonising some policies and benefits can help to create a unified identity, says Hinde. “Of course, the ideal is for every individual to benefit from an enhanced package, but the commercial reality often makes that an unrealistic option,” she says.
Offering a degree of choice on benefits, so individuals can pick and choose what they want, is one way to help overcome resentment that may stem from having different provisions.
Communications to employees
Once any new arrangements are finalised, communicating, and explaining, these to employees is crucial. Ted Webster, managing director at M&A advisory firm JEGI Clarity Leonis, says: “It is important to be upfront with employees about the impact of the merger on [an organisation’s] benefits. Messaging this appropriately is key to ensuring that employees feel reassured about the change and understand the benefits gained through the acquisition. These may include greater pay, new opportunities and career advancements.”
Benefits are particularly important as part of any wider communication because they are typically tangible and easy to understand, adds Adaora Geiger, partner and head of operations at communications firm H/Advisors Maitland. “Poor communication creates a vacuum that gets filled by rumours and speculation, leading to uncertainty, talent loss and decreased productivity,” she explains. ”Effective communication must address both factual and emotional content, providing an attractive vision of the future that helps employees see value beyond just shareholder returns.”
Adopting a total reward approach is one way to help employees see exactly what they are receiving, including any benefits that they may previously have not valued. “Total reward statements (TRS) are a fantastic way to let employees see the value of all their benefits,” says Westwood. “Employees will consider their TRS before and after change. If an employer has reduced one aspect of reward and increased another, the TRS lets the employee understand the accurate picture and the value of the actual changes that have taken place.”
Handled correctly, a well-communicated benefits policy can help enhance employee engagement at a difficult time for many, impacting positively on both retention and performance, says Hinde. “Of course, a poorly managed process will deliver the opposite,” she adds.
“During any M&A activity, employees will often explore their options outside of the organisation due to the change and uncertainty and so they might have something in the pipeline in the event that any transfer does not meet their expectations. It is, therefore, especially important to ensure reward and benefits act as a retention tool.”
