Total Rewards in M&A: Don’t Confuse ‘Integration’ with ‘Harmonization’
Unlock More
Total Rewards in M&A: Don’t Confuse ‘Integration’ with ‘Harmonization’
In mergers and acquisitions (M&A), integration is a world of grays, which is why there’s no one answer for the best way to integrate Total Rewards programs. Just like integration strategy is a spectrum, integrated programs exist on a spectrum too.
As we’ve discussed, integration starts with a cohesive understanding of the role of Total Rewards in the business strategy. When an organization has units with significant differences in how the business strategy is achieved, the Total Rewards strategy may need to have significant differentiation to play its role in achieving each unit’s business strategy. On the other end of the spectrum for organizations with businesses that are very similar or the same in how they achieve the business strategy, the Total Rewards strategy often has entirely harmonized programs.
Such an organization may be managed centrally to ensure compliance and risk management and leverage relationships with vendors across different offerings to achieve economies of scale. But it enables business units to offer different Total Rewards programs from a set of predefined options.
The purpose is to allow for offerings that meet significantly different business needs while leveraging size and mitigating the associated compliance risks. This structure may also provide the opportunity to maintain certain legacy programs provided compliance risk is managed. Generally, this will increase the necessary administrative overhead and can make transfers between business units very difficult.
Such an organization moves more toward a Total Rewards program with consistent core benefits and allowable differences in specific benefits or cost allocation between employer and employees. This approach provides increased compliance and risk management, and enhanced benefits from economies of scale, while allowing business units to manage cost to some degree.
This is a true balancing position that allows for addressing differing business needs but only utilizing a limited set of cost-management levers. By limiting the levers, this approach further contains the administrative overhead and compliance risk.
Such an organization has the highest level of consistency within the programs with little to no unique offerings at an individual business unit level. This approach maximizes efficient and effective cost and risk management, with little to no ability for individual businesses to manage their Total Rewards costs.
This sends a clear “one organization” message but can be very disruptive when combining organizations with fundamental differences pre-deal. Achieving this level of harmonization often requires “winners” and “losers” to create a sustainable Total Rewards program.
Once the Total Rewards integration strategy is determined without falling into the “one-size-fits-all” trap, let’s talk about the time needed to integrate programs, which we’ll cover in our next blog.
