Rethinking Your Total Rewards Programs During Mergers and Acquisitions

Rethinking Your Total Rewards Programs During Mergers and Acquisitions
Insights for HR

05 of 05

This insight is part 05 of 05 in this Collection.

Mergers and Acquisitions

04 of 11

This insight is part 04 of 11 in this Collection.

March 28, 2023 7 mins

Rethinking Your Total Rewards Programs During Mergers and Acquisitions

Rethinking Your Total Rewards Programs During Mergers and Acquisitions Hero Banner

Business leaders should take a close look at their reward programs during a merger or takeover to help retain talent and ensure a cohesive pay strategy.

Key Takeaways
  1. Economic uncertainty and a tight labor market make decisions around total rewards in an M&A deal even more important.
  2. Begin your total rewards strategy by focusing on the business goals of the transaction.
  3. Companies may face risks such as pay imbalances when integrating total rewards for a combined, acquired or newly spun off entity.

The talent environment today is a precarious one. Since the pandemic, companies are challenged to hire the skilled talent they need amid low unemployment, higher turnover and a reprioritization of employee values. Meanwhile, an uncertain economic future is influencing organizations’ total rewards strategies.

When thinking about the market in the context of a major disruptive event like a merger and acquisition (M&A), divestiture/spinoff or joint venture, these total rewards and talent challenges become even more prominent. An M&A transaction often involves not only a change in ownership, but also strategic direction. If business philosophies and objectives don’t align with HR and total rewards strategies, retaining talent becomes that much harder. Understanding what the transaction is all about — and determining if your reward program supports your specific objectives — is essential to help employees feel secure and valued during unsettling times.

Ensure your M&A is on track for success by being aware of common talent risks and focusing on key areas of your total rewards strategy.

Avoid Risk with a Strong Total Rewards Analysis

There are several common risks associated with M&A and total rewards:

  • Disruption to payroll or essential benefit coverage – One way to undermine employee trust is to make an error in their paycheck or otherwise disrupt their benefit coverage. Ensure a seamless transition of payroll and benefits by considering all interdependencies (e.g., legal, finance, payroll, benefits administration, etc.) that support overall effectiveness and communication of change.
  • Differences in reward philosophies – The alignment of disparate reward programs (e.g., differing base pay levels, differing incentive opportunities and eligibilities) can result in significant costs and disruption amid internal equity concerns and challenging communications. Identify differences in reward philosophies early in due diligence to ensure that alignment costs are factored into the pricing model and necessary alignment activities are incorporated into the integration plan.
  • Uncovering existing gaps or widening pay equity gaps in the M&A process – Looking at components of your business in a new light can uncover various errors and discrepancies. Inconsistent classification of exempt and nonexempt employees, constantly evolving regulations around pay transparency and different salary ranges for the same position are just a few of the challenges that often arise when organizations combine. These challenges may spark companies to fix previously unknown issues, which could result in wider gaps across the combined organization if not properly addressed. Consider implementing a pay equity analysis to guide you along the way. Learn more about the problems that can occur when pay ranges are not adhered to in our article, “New Hire Salaries are Rising — Along with Concerns About Pay Equity.”
  • Clashing total rewards philosophies in the same industry space – Employees are acutely aware of differences in rewards — particularly within similar roles or industry segments. While there may be valid competitive reasons for these differences (e.g., deeper equity eligibility for technology employees, increased childcare support or time off for onsite employees, etc.), differentiation requires careful considerations of the business rationale for unique rewards.
Rethinking Your Total Rewards Programs During Mergers and Acquisitions Image Divider

Harmonizing Total Rewards

Change events like M&A transactions can be disruptive to your workforce. Let’s face it: People usually don’t like change that’s out of their control. That’s why it’s imperative to understand the impact M&A transactions have on your employees.

Here are a few points to consider from a total rewards standpoint to keep your talent feeling motivated and confident, while also driving business outcomes:

Understand the deal’s business objectives and determine the impact they will have on your total rewards programs. Set milestones for relevant rewards changes to align with business objectives. If a transaction is focused on growth and adding new talent, it is important to address competitive pay and retention incentives. If a transaction is aiming to drive efficiencies and eliminate costs, the focus switches to staff selection and severance program design. If a transaction is focused on divesting a business for sale, address the stand-up of rewards for the stand-alone business. Once business objectives are understood (typically through the review of deal materials or leader interviews), determine the appropriate approach to rewards.

Ensure you have clear metrics and identify any gaps that may exist. Organizations are increasingly focused on metrics to understand the effectiveness of their reward programs. Since no single metric can measure overall effectiveness, companies typically use multiple metrics to gauge success. These might include time to fill open positions, turnover, spend and engagement.

Establish a strong change communication strategy. Communication is often the most neglected element of reward transitions. It is impossible to realize the value of an organization’s rewards investment without your employees truly understanding the value of their rewards and how upcoming transitions will impact them.

While these principles are universally relevant, they will need to be adapted for each transaction, type of deal and business geography. For example, in Europe, Works Councils and acquired rights impose specific conditions on the transition of rewards. These rules don’t exist in the U.S.; however, other regulatory challenges may apply. Across Asia, the comparability of pay or benefits can vary significantly in the potential impact of constructive dismissal and severance obligations.

Case Study: $140B Merger of Two Fortune 500 Leading Fintech Companies

A recent transaction between two leading fintech firms identified challenges related to varied work cultures and growing mistrust among employees. The compensation philosophy and approach to benefits unveiled differences to address in the combined organization’s go-forward total rewards design.

  • Our M&A team began the partnership by analyzing, recommending and supporting the implementation of compensation and benefits programs in 44 countries, including compensation redesign scenarios and estimated costs to achieve synergy objectives.
  • Following C-suite approvals, we developed a preliminary compensation structure and created a communication and change plan to ensure understanding and buy-in throughout the project. We also identified synergies and helped the client optimize compensation and benefit spend for over 30,000 employees.
  • Most importantly, we partnered with our client to design harmonized rewards that best meet the needs of the combined population, generally within a year of the deal close, to align colleagues globally as one organization and keep them engaged.

Next Steps for Driving M&A Business Outcomes Through Total Rewards

“While the total rewards transition might not seem like the most strategic part of M&A, the first and lasting impression many employees will have of the new organization is how their pay and benefits were handled,” says Dave Kompare, a partner in Aon’s People Advisory practice.

Whether accessing new products and talent to grow your business or driving efficiencies to reduce costs, getting total rewards right is a key part of the journey towards M&A success. Begin with a clear understanding of your business outcomes, the metrics you can use to assess these outcomes and a strategic plan to leverage rewards for an even stronger business future.

To speak with a member of our team about navigating total rewards strategy during M&A, please write to [email protected].

General Disclaimer

The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Terms of Use

The contents herein may not be reproduced, reused, reprinted or redistributed without the expressed written consent of Aon, unless otherwise authorized by Aon. To use information contained herein, please write to our team.

Aon's Better Being Podcast

Our Better Being podcast series, hosted by Aon Chief Wellbeing Officer Rachel Fellowes, explores wellbeing strategies and resilience. This season we cover human sustainability, kindness in the workplace, how to measure wellbeing, managing grief and more.

Aon Insights Series Asia

Expert Views on Today's Risk Capital and Human Capital Issues

Aon Insights Series Pacific

Expert Views on Today's Risk Capital and Human Capital Issues

Aon Insights Series UK

Expert Views on Today's Risk Capital and Human Capital Issues

Client Trends 2025

Better Decisions Across Interconnected Risk and People Issues.

Construction and Infrastructure

The construction industry is under pressure from interconnected risks and notable macroeconomic developments. Learn how your organization can benefit from construction insurance and risk management.

Cyber Resilience

Our Cyber Resilience collection gives you access to Aon’s latest insights on the evolving landscape of cyber threats and risk mitigation measures. Reach out to our experts to discuss how to make the right decisions to strengthen your organization’s cyber resilience.

Employee Wellbeing

Our Employee Wellbeing collection gives you access to the latest insights from Aon's human capital team. You can also reach out to the team at any time for assistance with your employee wellbeing needs.

Environmental, Social and Governance Insights

Explore Aon's latest environmental social and governance (ESG) insights.

Q4 2023 Global Insurance Market Insights

Our Global Insurance Market Insights highlight insurance market trends across pricing, capacity, underwriting, limits, deductibles and coverages.

Global Risk Management Survey

Better Decisions Across Interconnected Risk and People Issues.

Regional Results

How do the top risks on business leaders’ minds differ by region and how can these risks be mitigated? Explore the regional results to learn more.

Top 10 Global Risks

Trade, technology, weather and workforce stability are the central forces in today’s risk landscape.

Industry Insights

These industry-specific articles explore the top risks, their underlying drivers and the actions leaders are taking to build resilience.

Human Capital Analytics

Our Human Capital Analytics collection gives you access to the latest insights from Aon's human capital team. Contact us to learn how Aon’s analytics capabilities helps organizations make better workforce decisions.

Human Capital Quarterly Insights Briefs

Read our collection of human capital articles that explore in depth hot topics for HR and risk professionals, including using data and analytics to measure total rewards programs, how HR and finance can better partner and the impact AI will have on the workforce.

Insights for HR

Explore our hand-picked insights for human resources professionals.

Workforce

Our Workforce Collection provides access to the latest insights from Aon’s Human Capital team on topics ranging from health and benefits, retirement and talent practices. You can reach out to our team at any time to learn how we can help address emerging workforce challenges.

Mergers and Acquisitions

Our Mergers and Acquisitions (M&A) collection gives you access to the latest insights from Aon's thought leaders to help dealmakers make better decisions. Explore our latest insights and reach out to the team at any time for assistance with transaction challenges and opportunities.

Natural Resources and Energy Transition

The challenges in adopting renewable energy are changing with technological advancements, increasing market competition and numerous financial support mechanisms. Learn how your organization can benefit from our renewables solutions. 

Navigating Volatility

How do businesses navigate their way through new forms of volatility and make decisions that protect and grow their organizations?

Parametric Insurance

Our Parametric Insurance Collection provides ways your organization can benefit from this simple, straightforward and fast-paying risk transfer solution. Reach out to learn how we can help you make better decisions to manage your catastrophe exposures and near-term volatility.

Pay Transparency and Equity

Our Pay Transparency and Equity collection gives you access to the latest insights from Aon's human capital team on topics ranging from pay equity to diversity, equity and inclusion. Contact us to learn how we can help your organization address these issues.

Property Risk Management

Forecasters are predicting an extremely active 2024 Atlantic hurricane season. Take measures to build resilience to mitigate risk for hurricane-prone properties.

Technology

Our Technology Collection provides access to the latest insights from Aon's thought leaders on navigating the evolving risks and opportunities of technology. Reach out to the team to learn how we can help you use technology to make better decisions for the future.

Trade

Our Trade Collection gives you access to the latest insights from Aon's thought leaders on navigating the evolving risks and opportunities for international business. Reach out to our team to understand how to make better decisions around macro trends and why they matter to businesses.

Transaction Solutions Global Claims Study

Better Decisions Across Interconnected Risk and People Issues.

Weather

With a changing climate, organizations in all sectors will need to protect their people and physical assets, reduce their carbon footprint, and invest in new solutions to thrive. Our Weather Collection provides you with critical insights to be prepared.

Workforce Resilience

Our Workforce Resilience collection gives you access to the latest insights from Aon's Human Capital team. You can reach out to the team at any time for questions about how we can assess gaps and help build a more resilience workforce.

More Like This

View All