Harmonizing benefits of post-M&A: flexibility key to success

With a flexible benefits program, not only is it easier to harmonize two divergent benefit strategies, but in doing so get the best of both worlds. / Courtesy of Towers Watson

The global stagnation in growth does not seem to have had an adverse effect on the expansion plans of Asia Pacific multinationals. In fact, they may be capitalizing on it, snapping up deals where they can: According to a recent Towers Watson report, Globalizing Asia Pacific: Maximizing the Value of Human Capital in Outbound M&A, Asia Pacific-headquartered companies ramped up M&A activity outside the region by an average of 20 percent year-over-year between 2003 and 2011. And in the first half of 2012, for the first time, Asian outbound deal activity overtook deal activity by companies outside the region into Asia.

Additionally, a separate Towers Watson research, Quarterly Deal Performance Monitor (QDPM), which began in January 2008 and is carried out in conjunction with Cass Business School, found that Asian companies completed a surprising 22 deals in the last two weeks of 2012 to achieve a quarterly total of 68. This research also bears out that rewards favor the brave: In terms of performance, Asia Pacific companies that completed M&A deals outperformed their MSCI index by 3 percentage points over the year.

As M&A activity, both outbound and intra-region, picks up, employers will ask themselves what factors contribute to the success of a deal, and how they can be influenced. While the answer largely depends on the reasons for entering into the deal — for instance, some deals are done to acquire assets or a business that will run independently of the parent — in the majority of cases, M&A is a people business. A deal is not complete until the acquirer and the target are integrated; and this includes not only business processes and workforces, but organizational cultures, and every program and process from IT to pensions and other benefits, in each geography where the combined business has operations.

And the stakes are high: if this integration is not done effectively, a deal’s chances of success can plummet. Key talent can grow wary and look around for other opportunities; employees may become disengaged and productivity may fall at a time when the new firm is the most vulnerable.

So the important questions for employers undergoing an M&A deal are: How can a deal be navigated without losing key talent? And how can employee engagement in the organizational goals and strategies of the new firm be created and sustained?

Role of benefits

Employee attraction and retention, particularly in a post-deal environment, is a complex equation between employer and employee, and various factors — including organizational culture, leadership style and how change is communicated — will play a role. One of the crucial elements in this equation, and often the first things an employee will look at, is the total rewards package. And benefits are an integral part of this, given their often emotive nature. An effective benefit package helps employees protect themselves and their family, as well as plan for the future.

It is important to remember that benefits are only one element of a Total Reward proposition. The coming together of two organizations may prompt a review of the overall reward strategy to ensure that it aligns with the new combined business strategy — any changes to the reward strategy will also drive decisions about benefit programs and design.

Why cherry picking may cost you

The most common approach for a company looking to harmonize its benefits with an acquisition is to “cherry pick” the best benefits and benefit levels across the two benefit plans and offer them to all employees. However, although this approach may be easiest to implement, it’s also likely to be unnecessarily costly for the new company. A larger employee base will necessarily be more diverse, with diverse needs. By cherry picking, precious resources may be wasted in giving employees resources that they don’t value, or even know that they have.

Instead, many companies have found value in implementing a program of flexible benefits — where employees are offered a menu of choices, and choose what they want based on their age, lifestyle, family situation and other factors. Each generation has different priorities: for instance, even while security is a concern across the board, the older generation will be more actively looking to secure their retirement, while younger employees might be more open to other perks such as the ability to buy more annual leave or alternative work arrangements.

Flexible benefits:Implementation and payoffs

Typically, employers cite increased administration as the most common objection to implementing a flexible benefits program. And it’s true that before an effective flexible benefits program can be designed, let alone implemented, there is a considerable amount of data consolidation required. However, especially in a post-integration scenario, this type of review is crucial regardless; to map each company’s rewards strategy, identify the extent of liabilities, and so forth. Implementing a flexible benefit program at this stage presents an opportunity to harmonize benefits in a cost-effective way.

To ensure the success of any flexible benefits program, a robust benefit administration platform that will serve as the ‘one source of truth’ for benefits data is required. The shift from a paper-based administration system to an online platform has a wealth of advantages from reducing the administrative burden on HR — automating the monthly administration processes, freeing up time and effort for other, more strategic, projects — to improving employee engagement. By having an online web based system that is accessible anywhere, and streamlining the claim filing process, eliminating the need for forms and paperwork, employees start to becoming more active in managing their own benefits, and may be more likely to take advantage of what is on offer. Historically, employees have turned to employer-sponsored benefits for outpatient services and hospitalization — but a flexible benefits package can show them what else is out there, from wellness, to family care, and into postemployment. This, together with the freedom of choice flex brings, can cause many employees to see their benefit package in a different light.

Value proposition of flexible benefits

An effective flexible benefits program has several advantages; particularly after an M&A deal. It will allow employees from legacy organizations to keep benefits that they deem important to themselves and their family. It will also provide far greater choice without a proportionate rise in benefit costs, and effectively harmonize the two legacy benefits strategies.

Following a merger or acquisition, implementing a flexible benefits program presents an opportunity to switch employees’ perception of benefits from ‘entitlement to a benefit’ into ‘entitlement to a value’. By giving employees flexible benefit ‘credits’ or the opportunity to flex certain benefits to release ‘credits’, the value of the benefits that they are selecting to meet their current needs and requirements becomes much more visible.

Organizations going through any type of change, in particular a merger or acquisition, will find opportunities amidst all the flux — in fact, it’s hard to find a better time to reassess and re-evaluate the status quo of legacy programs and strategies. Particularly in the Asia Pacific environment — where employers struggle to keep skyrocketing benefit costs in check while still offering competitive benefits amidst a raging war for talent — employers cannot afford to spend money on undervalued programs.

With a flexible benefits program, not only is it easier to harmonize two divergent benefit strategies, but in doing so get the best of both worlds. When partnered with an effective technology platform and a robust communication strategy, a flexible benefits program can be the edge an organization needs to ensure key talent and critical skill employees remain engaged and committed to the post-integration organization, drive value and add to the new bottom line.

This article was provided by Towers Watson.