Volume 2 Issue 8 - 2009
Merging Benefits With Flex | Cisco Improves Benefits Delivery | Promoting Wellness in Asia

Merging Benefits With Flex

Navigating Your Benefits Strategy During a Merger or Acquisition

Rice Loh 

Navigating toward a successful workforce integration has become an increasingly critical issue as mergers and acquisitions become more prevalent among big and small market players alike. Many factors determine whether an integration is successful; however, people are often the most important determinant among all aspects of a merger. Employee retention is critical to ensure a successful merger and companies need to quickly identify valued talents and ensure that they continue to contribute and grow with the new company.

Four primary components – pay, benefits, learning and development, and work environment – combine within a Total Rewards framework to support employee retention. Among the four, employee benefits, can play a particularly destabilizing role as employees worry that their benefits will be cut and their options will become limited. A flexible benefits (Flex) approach to integrating the benefits programs of merged companies can go a long way toward putting employees at ease and creating a positive employee attitude toward the newly merged organization.

Laying a solid foundation

The first step in planning for program integration is to clarify or reconfirm the underlying values of the merged company. Plan design should foster understanding of the programs and how they support business goals. The design should reinforce the company’s values and culture, such as promoting workforce diversity, meeting personal needs of employees and their families, and encouraging shared responsibilities between employers and employees. The new benefits program should create competitive advantage for attraction and retention.

Mergers and acquisitions involve more than one company, each of which often has different corporate values and priorities. Thus, it becomes critical that HR carefully assesses and evaluates the objectives of the benefits program to ensure they are aligned with the desired corporate values for the new organization. (Read a case study of merging benefits with Flex at the end of this article. )

The building blocks

The increased number of mergers and acquisitions has reinforced the trend toward Flex. The larger workforce as a result of the merger often creates a new and more diversified employee demographic. Employee benefits programs have to be flexible enough to cater to the changing needs of the new organization, and offer greater choice in benefits to satisfy dissimilar employee requirements.

Adoption of a flexible benefits program can facilitate an easier integration of benefits programs. Moreover, a flexible program can provide room for innovation when merging programs. With a flexible benefits approach, two companies’ discrete benefits programs can be combined and harmonized so that legacy components are retained at levels that satisfy existing employees without incurring additional cost to the company. A flexible benefit also helps foster transparency and promotes equity among employees. With Flex, employees clearly can see the value of benefits.

During an M&A, employees often are keen to know the implications of the changes to their new benefits program. They want to understand how the new plan will affect their coverage level, and they want to know if any benefits will be removed or terminated. It is quite likely that employees view their existing benefits as “entitlements”. The greater the existing benefits offerings, the more challenging it is to make changes to the program. Employee benefits may be insignificant when we view them from a full perspective of total compensation; however, we should never underestimate its impact on employee perceptions. A flexible benefits plan allows an employer to maintain existing benefits and to offer various choices to employees. Employees can pick and choose among benefits options, extend the benefits to eligible dependents, and upgrade the level of certain benefits, based on their personal needs.

Striking a balance

Flex can help strike a balance between minimizing an employer’s benefit costs and achieving minimal negative change in benefits for employees. A “defined contribution” approach within a Flex plan presents employees with choices and forces them to take greater responsibility for selection and management of their benefits. Employees start to take charge and are more likely to make full use of benefits that they have selected and “pay” for. The change facilitates a greater degree of ownership, and increases employers’ and employees’ ability to plan accordingly. By offering choices, employees often find the enhanced employee benefits program to be attractive even though it entails the option of salary sacrifice or voluntary top-up for additional benefits.

Companies that are merging benefits can adopt a creative Flex approach that addresses employees’ concerns about imposition of new policies that may be to their detriment. For example, an employer can incentivize employees to participate in the new benefits program, rather than imposing the program on them. A Flex approach to benefits helps minimize disruption to the existing plan and practices. Plus, a Flex approach that allows employees to continue with existing benefits avoids the risk of introducing new practices that are not aligned with market norms.

Program management made easy

A common fear among those considering a Flex approach is the potential administration hurdles. Due to the complexity and high cost maintenance of the technology, Flex administration is typically outsourced to a third-party vendor. Our experience with many companies has shown that HR faces a challenge in monitoring the outsourced administrators’ performance. Issues of data accuracy, timely delivery, and fulfilling the in-house management and/or corporate reporting requirements can confound companies using third-party vendors to administer their Flex programs. Accuracy, timeliness and efficient reporting are essential components of a Flex benefits program. If not managed well, they can come at a high cost.

Today’s technology has advanced far enough that most information can be available via self-service and real time, with easy access from anywhere. A good Flex administration platform allows authorized staff to obtain and generate necessary information whenever needed. Nowadays, companies adopting a Flex approach can re-define policy rules during the planning stage and automate day-to-day administration, such as calculations for Flex credits allocation. Companies have also learned to overcome common multi-currency and multi-lingual issues through the effective use of technology. Flex benefits programs can offer an effective solution that addresses mobility without incurring cost and administration in the long term. The key to success for administration is technology that is able to support the complexity of program design and administration.

Conclusion

The return on investment from a successful merger is often linked to a high performing workforce of the combined companies. When companies have the right people on board and are able to keep them, a happy and productive workforce becomes a pillar to success. Flex benefits certainly are not the only method to secure employee retention and high morale, but the approach has proved to be a strategy that is welcomed by employees undergoing a merger. Look at Flex if you are ready to reinvent your employee benefits program to help meet the challenge of merging organizations.

Contact

For more information about Aon Consulting’s capabilities and experience in flexible benefits, please contact Rice Loh, Associate Director - Health & Benefits in Singapore at rice_loh@aon-asia.com.