Employee

Compensation and
Benefits in Mergers and
Acquisitions
HRM Case

Abhishek Gupta
MBA Tech Telecom
509

When a merger is announced, company employees become concerned about job security
and rumors start flying. Morale and productivity can take a nose dive. Combining two
companies into one can create interpersonal conflict, role confusion and uncertainty about
change. HR policy integration becomes crucial for post merger integration success if the
two merging companies carry different legacy procedures.
Organizational mergers and acquisitions have been numerous during the last
decade, and the trend shows little evidence of easing. Such combinations often are driven
by the attraction of economies of scale and increased market share. The joined companies
usually want to combine their benefit plans to reduce administrative costs and to provide
the same benefits for all the employees. But often unnoticed in the atmosphere
surrounding the merger or takeover are the difficulties and potential costs of merging
benefits programs.
The difficulties are seen when Aftek Infosys acquired Melstar Information
Technologies ltd. Although both firms are Software Development firms, they are very
different in corporate culture. Aftek Infosys, with 10,000 employees, has numerous
unionized workers represented by the United Software Developers and Software Testing
staff. However, Melstar Information Technologies ltd., with 3,000 employees, had no
unionized workers. The difference in culture and employee relations resulted in each firm
having significantly different benefit plans.
Melstar Information Technologies ltd., as a family-owned firm based in Pune, had
established a broad range of highly employee-oriented benefits. For example, Melstar
Information Technologies ltd. had a company owned training program for employees’
children and funded college scholarships worth Rs.7000 per child in grants for
employees’ children. As a result, Melstar Information Technologies ltd. had employee
loyalty, low employee turnover, and a highly team-oriented environment.
Aftek Infosys’s culture and benefits program did not include many of the Melstar
Information Technologies ltd. benefits. Instead, having a union-dominated environment,
the benefits plan for Aftek’s Infosys employees had been gained through years of union-
management negotiation and bargaining. Therefore, its benefits program contained few of
the family-friendly and flexible benefits offered by Melstar Information Technologies ltd.
The acquisition of Melstar Information Technologies ltd. made strategic sense for
Aftek Infosys. But executives at Aftek Infosys had to confront two worries: (a) that Aftek
Infosys employees might want to add the Melstar Information Technologies ltd. benefits;
and (b) that the Melstar Information Technologies ltd. employees would react very
negatively if some benefits were discontinued, thus affecting productivity and morale.
To address these issues, the chairman of Aftek Infosys, had to reassure Melstar
Information Technologies ltd. employees that the combined companies would continue to
provide good benefits. But he stated that the scholarships would continue for five years
and might be discontinued after that. Also, it was decided that the training program would
operate for two more years. But the Melstar Information Technologies ltd. employees
recognized that the organizational culture and job security, as special benefits they had,
are likely to be diminished as a result of the acquisition.

Questions:
1. Why is evaluation of benefits a crucial part of planning after merger/acquisitions?
2. What could be done to meld the different benefits plans in ways that balance both
employer costs and employee morale considerations?

The above case study illustrates the important link between a firm’s strategic objectives
and its compensation system. The case also illustrates how compensation systems must
be compatible with the culture of an organization.
Benefits are a crucial part of planning for mergers and acquisitions because:
• Benefits provide additional compensation to employees as a reward for having
organizational membership.
• Benefits generally are not taxed; they are highly desired by employees.
• Strategic reasons for offering benefits include attracting and retaining employees,
improving the company’s image, and enhancing job satisfaction
 • An employer with a more attractive benefits package may have an advantage over
other employers in hiring qualified employees if the base pay is similar to that of
competing firms.
References:
Mergers and Acquisitions by J. Fred Weston and Samuel C. Weaver
http://xlrisapphire.wordpress.com/2009/10/29/501/
http://uk.answers.yahoo.com/question/index?qid=1006041021516
http://www.citehr.com/54531-role-hr-mergers-acquisitions.html
http://www.articlesbase.com/management-articles/role-of-human-resources-in-mergers-
and-acquisitions-957835.html