As corporate merger and acquisition activity continues to increase around the world, a new survey by Hewitt Associates, a global human resources consulting and outsourcing company, found that how companies leverage their compensation and benefits programs during these transactions plays a critical role in retaining key talent and ensuring the overall success of the deal.
Findings from Hewitt’s July M&A survey of 103 companies around the world showed that just 44 percent of organizations that participate in M&A activity met or exceeded their stated transaction goals. Hewitt’s survey also revealed that total rewards—which include compensation and benefits programs—is one of the main levers that organizations can use to drive deal success. In fact, of the companies in Hewitt’s survey that exceeded their transaction goals, almost all exhibited four key characteristics for how they approached their total rewards strategies:
Focusing on Liabilities in Due Diligence
According to Hewitt’s analysis, companies that exceeded their transaction goals (“Overachievers”) gave extra attention to total rewards elements in due diligence that are most likely to create liabilities. These areas included employment contracts, change-in-control and severance agreements (95 percent); executive compensation (90 percent); defined benefit retirement plans (79 percent); and executive benefits and perquisites (74 percent).
“During a transaction, Overachiever companies have a laser-like focus on total rewards liabilities and leadership, while organizations that fail to meet their goals spread their attention across a variety of due diligence topics,” said Elizabeth Fealy, global leader of Hewitt’s Corporate Transactions and Transformation Consulting practice. “Overachiever companies are simply better at evaluating their total rewards pre- and post-merger, mitigating potential risks and leveraging the cost savings they uncover.”
Looking at Total Rewards in Aggregate
During the purchase agreement stage, Hewitt’s survey found that more than two-thirds (67 percent) of successful organizations provided compensation and benefits similar to those of the acquired company for a set time after close. This broad commitment helped ensure employees didn't experience a loss in the value of their rewards because of the acquisition—a core concern of most employees. These organizations were also more likely to make similar commitments for their employees in a divestiture situation (69 percent).