Challenges in Employee Retention Post Merger & Acquisition in India

Introduction

Merger and acquisition is an attractive option for the management and investors but employees views it as a threat. So after merger & acquisition organization face the problem of retention of employees. Employees have negative attitude towards merger & acquisitions due to following reasons:

• Uncertainty about the future organizational direction
• Feelings of loss of previous organizational culture
• Uncertainty regarding job security
• Perceptions of lack of leadership credibility
• Feelings of uncertainty due to a lack of communication
• Survivor guilt due to downsizing of other employees
• Feeling of increased job stress and workload

In actual, due to merger & acquisition, employees start search for new job and quit the job because of uncertainty and lose of trust over the organization. However high rate of employees turnover is not good for the organization. Employees turnover rate should be low due to following reasons:

1. Business continuity is key to realizing the benefits of a merger or acquisition
2. Large cost of hiring new employees, as well as the loss of knowledge/ intellectual capital, and the loss of client relationships.

Therefore, organizations must proactively work to build up employee trust to keep them. Employees are the assets of the organization and managers should make effective plans to reduce turnover during a merger or acquisition.

Objective

1. To highlight the challenges in retaining talent post-merger & acquisition.
2. To provide recommendations on how to deal with organizational human resources and retaining talent during merger & acquisition.

Literature Review

Avinash and Dr. Jaya (2016) found that the major factors that should be considered in retaining talent post-merger and acquisition are lack of employee motivation, lack of shared vision, misaligned structures, management leadership clash, cultural mismatch, poor communication and poor change management.

Nishith, 2010 have tried to investigate various aspects of M&A in India. Gubbi, 2010 have tried to predicting the targets of M&A and identifying the motives. Few papers have been studied to predict the targets and determine the characteristics of acquiring firms like on manufacturing industries, financial sectors etc.

Harpreet, 2010 have tried to find out the efficiency of merger & acquisition but no significact researches has been find that can conclude whether merger & acquisition increases the productivity or reduces. It is an ongoing debate.

Siddharth and Gopi (2009) examine the effect of centralization of possession on firm performance and productivity. From one viewpoint, grouping of possession that, in turn, moves management control in the hands of a key financial specialist, reductions of organization issues connected with distributed ownership. While on the other side, it might prompt entrenchment of senior management which might be conflicting with the goal of profit maximization. Their paper focuses at the effect of M&A on profitability of organizations in India, where the corporate scene is overwhelmed by family-claimed and aggregate associated organizations.

Eilen and John (2004) talk about the qualities of both the acquirer and the target organizations in India between the years 1993-2004. Utilizing logic regression model, they reasoned that the acquirer firms have higher income, higher PE proportions, higher book value, higher fluid resources, and lower debt to total resources proportion which are measurably critical when compared with the target organizations. The acquired firms were smaller in revenue, had lower PE proportions, lower profits payout, and lower development in deals and resources. The acquirers had higher cash flows and lower influence which, on a basic level, run with the organization philosophy.

Mohibullah (2009) in his paper, 'Effect of culture on mergers and acquisitions: A hypothetical structure' has talked about four principle issues identified with cultural conflicts are highlighted: ambivalent and cultural issues inside the consolidated element, legitimate management of social incorporation, securing and hierarchical society and improper cultural integration process among the merged firms. The result of his paper was that associations need to build up a framework before mix, which must support appropriate correspondence among representatives from top to downwards. This methodology will prompt reducing the gravity of ambiguities found among the staffs amid the merger procedure.

Daniel (2010) in her paper discussing about corporate's duty to staffs during a merger: organizational value and staff loyalty. She has talked about that how staff perspectives of the merged firm vary by their pre-merger foundation and to describe the effect of the inadequately perceived organizational goodness on staff's value, emotional reaction to the merged firm including fulfilment, psychological contract, job stability and integrity. She has observed that view of organizational empathy; warmth and uprightness were emphatically related with worker loyalty, job stability, satisfaction and emotional attachment.

Sammer and Miller, 2005 Most of the article has added to distinguishing what successful organizations with M&A experience are doing in their top management of individuals. Likewise to distinguish key HR Practices that separate top performing from non-top performing organizations with full combination three years after acquisition. The study has affirmed that fundamentally different strategic HRM practices are embraced by effective organizations. Taking care of HR issues during the integration procedure is a hard and critical task that can improve HR Practices and contribute decidedly to the organization's outcomes. Linda, 2000 Human resource experts can play a critical role during the due diligence process required in an M&A process. Apart from their transactional role as a contributor in the survey, assessment and integration of staff benefit policies; they can likewise help with the planning of workforce needs as far as talent pool and their role, in the evaluation and administration of legal liabilities. Strategic planning and early inclusion of HR teams during the M&A procedure can move toward boosting the potential for achievement.

Challenges in Employee Retention Post Merger & Acquisition

The employee perception of post-merger HR interventions into the various issues arising out of mergers or acquisitions was ascertained through the multiple talent retention survey and articles. After thorough analysis of various reports, following challenges are listed down in retaining talent post M&A:

• Lack of Shared Vision: The integration of organizations vision is significant from M&A point of view. It is not as simple as to design any module. An M&A with a refined objective and pragmatic vision lead to successful integration process in terms of high return of shareholder value. New vision should be comprises of strategic growth for both the organization as well as high retention of talent which would be future leaders for the firm. Visions are borne from competent objectives, usually enhanced by visionary executives in multiple discussions and meetings. The issue is that several concepts look encouraging at the primary level, yet turn out to be futile later on. During the process of M&A, Two different organizations with unique vision integrate which result in ambiguous direction for the talent. In these situations, it is really challenging for the employee to scrutinize the actual vision of the firms and it takes a very long time figure out the revised shared vision of new firm. A synergistic approach is persistently co-composed with the business leader and proper partners to adjust to the necessities and timing of the association. Every association has its own mantra and must build up its own particular Shared Vision, mission, values, sustaining strategy and procedures – Its own particular Corporate Identity.
• Management Leadership Clash: Several management gurus have persisted on the significance of how executives can successfully oversee and inspire talent during merger and acquisition. Therefore, it is important for the executives that they play the role of leader when it has just been publically announced about the merger and acquisition of their organization. He has concluded in one of his paper that a strategy based model is always crucial while dealing with any such integration process. Their model highlights on the stage of M&A that they characterize as the most difficult one for executives. That stage is the first in an M&A procedure and it is described by lack of data, mostly because of the requirement for approvals of management, ambiguity and uncertainty. This phase also influences both executives and employees. Officials of the acquired firm are dealt with as though they had been overwhelmed, making them feel humble and experience lost social positioning.
• Cultural Mismatch: Cultures are most important part of a company. Few research scholars propose that culture is to an association what personality is to an individual. As such, they recommend that cultures serve as bonding between organizational members, creating a feeling of union. Culture development is neither a phenomenon nor a planned activity. It does only depend on the thought, vision and ideas of the leaders or current executives, yet it is, to a remarkable degree, an inward response to outside goals. Organizations involved in the merger process may have different culture and it is crucial for the both entities to manage their culture which leads to either success of the merger or the failure of the merger. A firm’s culture is constituted of shared convictions and values that enable the people of the firm to get the meaning and allocate them with the guidelines for the way they behave in their firm (Davis30, 1994). The value of culture is not by and large perceived inside the firms, because keys preferences and assumptions parameter and decision lead to operate at a primitive phase.
• Misaligned Structures: It refers to the process that how restructuring process was accepted by both the organization post-merger and acquisition. The future of talent is highly dependent on the restructuring model adopted by the firm. Most of the organization has not been able to realign themselves according to the pre decided strategies which result in attrition of talent from their team as well as organization. Restructuring process not only limited to change in the policies but it also involve change in reporting managers, change in clients and many more. As we all know that, a change is never desired and always feared to accept. It is the last things that an HR wants to anticipate in their organization.
• Employee Emotional Change: Most of the psychologists have analysed the different phase of employee emotional change pre and post M&A process. The emotional changes begin from confusion, bargaining, focus, enthusiasm, exhaustion, letting Go, crystallization and integration. Below mentioned graph has been plotted between emotional responses of the employee during the course of integration to the time period of 12 months. The initial information about M&A leads to confusion and later on disengages the staffs which results, top performers are the first who leave the organization. When talent become disengage, it takes less time for consumers and shareholders to lose the brand value and switch to other product.
• Poor Communication: During the process of mergers, staffs are usually kept oblivious about the buy or sale of the enterprise. They often get the information about merger and acquisition after the merger and acquisition, through the corporate grapevine or through the media communication. This can lead to a misrepresented or distorted picture of the merger's repercussions and to counterproductive exercises by staffs, which might be on edge about possible employment losses. So companies should inform all the staff timely and also discuss their concern to minimize the anxiety. This thing can built the cooperation and mutual trust among staffs furthermore gives them confidence that the new management is prepared to listen their concerns and feelings (Johnson 28, 2000).
• Poor Change Menagement: In an M&A deal, change management is a core C-suite responsibility—from creating urgency and building buy-in with the board of directors to communicating with employees to reassuring shareholders and, of course, customers. It should be the prime responsibility of the executives to consider change management as a critical issue and design a roadmap for their team members and for the organization as well. With introducing the change management analysis in the premerger phase which comprises of target identification, due diligence and development strategy of the acquisition process can increase the success rate of merger or acquisition process for their organizations.There are various techniques and methods for change management, but they all address the same basic questions: What kind of specific change and organization is trying to bring and reason behind that? Who is affected by the change? How should the change be implemented to realize the desired business benefits? Timely communications, training, and leadership engagement (both at the senior and middle-management levels) are the instruments required for managing a successful change.

Ways to Retain Employees

• Financial remuneration

Financial payment in the form of retention incentives has been considered a important factor after merger or acquisition and this cost is also considered as a part of cost of M & A. Companies believe that providing financial benefits are sufficient to retain the employees. However, the retention incentives can only make a bridge to build the trust of the employees on organization during M & A.

Monetary benefits alone will not rebuild employee trust for long term. The company should consider other factors also to regain employee trust. Otherwise, once the retention incentives are paid, employees may start to look for other job opportunities.

• Organizational support

The perceived organizational support perspective is guided by the principle that most employees need to feel that their organization respects and supports them in order to remain committed and loyal, satisfied with their jobs, and willing to work hard. Accordingly, employees develop global beliefs concerning the extent to which their organizations value their contributions and care about their well-being.

Sufficient Access to Information

Organizations should proactively create communication strategies that utilize effective organizational communication practices. For example, management should explain why the merger or acquisition was advantageous; repeat messages through multiple communication channels; recognize that employees prefer face-to-face communications; check to make sure that the messages sent were the messages received; and realize that not communicating has negative instead of neutral effects.

Ongoing learning & professional development

During the build-up to a merger or acquisition, organizations might discontinue training and development opportunities to cut costs and improve their financial bottom-lines. Management should rethink this practice since the costs of attrition can far outweigh continuing to give employees some level of discretionary resources. In addition, training that is clearly linked to job performance can be another example that reinforces the message that the organization values their employees and wants to help them improve their job-related skills.

• Managerial support

Just as employees develop global beliefs concerning the extent to which the personified organization values their contributions and cares about their well-being through organizational support, employees develop impressions about how much their manager (or supervisor) values their contributions and cares about their well-being through perceived supervisor support.4 Managers play a critical role when employees are deciding whether or not to stay in an organization through carefully assessing employee potential, clearly articulating organizational goals, encouraging employee development, and helping attain necessary information, resources, and technology. Consequently, organizations should hold managers accountable for the retention of subordinates. They should also evaluate managers' people management skills, as these skills are often either not evaluated or are undervalued when compared to business performance results.

The analysis of the 2004 employee survey data found that managers can provide support by taking the following steps:

• Monitoring employee workloads
• Meeting regularly with employees to communicate bothorganizational and managerial support
• Providing employee performance management feedback on a regular basis.

Monitoring Workloads

One unfortunate consequence of mergers and acquisitions is that employees are often required to take on additional workloads. Accordingly, organizations should require managers to have conversations with employees about their potential new roles subsequent to the merger or acquisition and support them, as much as possible, in developing/acquiring/learning the knowledge, skills, and tools necessary to be effective in that new role.

Meeting with Employees

A simple way managers can communicate organizational and managerial support to employees is by holding regular one-on-one meetings to discuss how the employees are coping with their new roles and often increased workloads. Through these one-on-one meetings, managers should also communicate care and concern about the well-being of the employees as individuals.

Providing Performance Management

Organizations should evaluate their performance management processes to determine whether they provide a rigorous identification of talent, effectively evaluate behavioral and professional competency development, and appropriately recognize achievements. In addition, organizations should require managers to provide individualized, formal feedback to employees. Managers should be encouraged to view the performance management process as a priority, investing time and energy in mentoring and developmental feedback discussions.

Conclusion

Retention incentives are an important part of any merger or acquisition. Employers need to retain their employees because they need to retain their intellectual capital, the client relationships that have been fostered, and the business focus that allows the organization to continue to operate effectively. Financial remuneration during the time of a merger or acquisition can be important and is usually expected. In some cases, it can make the cost for a competitor to 'buy out' the employee prohibitive. Similar to a sign-on bonus for a new employee — which helps convince an employee to jump ship and take a new job — a retention incentive needs to be a counterbalance. The retention incentive should be designed to convince the employee that a new job in a new organization may not be the better option and to give their current organization’s merger or acquisition a chance to show its value.

However, it is critical that the organization understand the limitations of financial remuneration in an M&A situation. The additional dollars will not buy hard work or long-term loyalty. Instead, they should help open the door for the organization to begin demonstrating it will 'do the right things' for its employees. Those things may include providing managerial support and direction, clear communications about the business, learning opportunities, and strong leadership. The new organization also has to do a good job at communicating its vision for the new combined entity and how the combination is actually beneficial to the employees through growth and/or sustained viability.

In order to decrease post-M&A attrition, over the long term, organizations and managers must take tangible steps to improve employee commitment and employee retention by providing additional support. These types of effort can help keep your critical talent, intellectual capital, and client relationships on board. Deloitte has service offerings and tools to help you in your efforts to keep employee turnover low and rebuild employee trust at each of these points in the M&A life cycle:

• Due diligence
• Developing the preferred employment model
• Identifying high-performing employees and critical roles
• Developing a retention strategy and designing a retention program
• Obtaining program and budget approvals
• Integration advisory
• Developing a communication strategy
• Developing performance management programs
• Creating training programs
• Providing leadership coaching
• Facilitating employee focus groups or round tables
• Developing employee engagement surveys and assessments
• Program management
• Completing management transition
• Improving communication across entities
• Facilitating complex integration activities

References

1. https://www2.deloitte.com/content/dam/Deloitte/jp/Documents/human-capital/hcm/jp-hcm-hr-retention.pdf
2. https://www.shrm.org/hr-today/news/hr-magazine/0617/pages/how-to-retain-talent-during-mergers-and-acquisitions.aspx
3. Vazirani, N., An integrative role of HR in handling issues post mergers and acquisitions. SIES Journal of Management, 9(2), 82, 2013.
4. UdayBhaskar, 'HR as business partner during mergers and acquisitions: The key to success is to get involved early', Human Resource Management International Digest, Vol.20 Iss: 2 pp. 22 – 23, 2012
5. Moffat, A., & McLean, A., Merger as conversation. Leadership & Organization Development Journal, 31(6), 534-550, 2010
6. Daniel, Teresa A., “Managing human resources in mergers & acquisitions”, SHRM, Business leadership discipline, December 2010
7. Nishith Desai Associates, “Mergers and acquisitions in India (with specific reference to competition law)”, www.nishithdesai.com, February 2010
8. Gubbi, S. R., Aulakh, P. S., Ray, S., Sarkar, M. B., &Chittoor, R., Do international acquisitions by emerging-economy firms create shareholder value? The case of Indian firms. Journal of International Business Studies,41(3), 397-418, 2010
9. Krummer, C., Overcoming the Challenges and Issues of Post-Merger Integration: Putting PMI in the Driver’s Seat in the M&A Process. Mergers and Acquisitions: Issues and Perspectives from the Asia-Pacific Region. pp. 133-146, 2009
10. Saboo, Siddharth and Gopi, Sunil Bocconi University Milano Italy, “Comparison of Post -Merger performance of Acquiring Firms (India) involved in Domestic and Cross-border acquisitions”, Indian Institute of Management Kozhikode, Munich Personal RePEc Archive, 2009
11. Mohibullah, “Impact of Culture on Mergers and Acquisitions: A Theoretical Framework”, International Review of Business Research Papers, Vol.5 No. 1 January 2009 Pp. 255-264, 2009
12. Fischer, K., Rush, T., Staffing after Mergers and Acquisitions: A Human Resource Management Study. Journal of Business Case Studies, Vol. 4, No.12, 2008
13. Karen Lindquist, 'HR's role in mergers and acquisitions', Strategic HR Review, Vol. 6 Iss: 3 pp. 3- 3, 2007
14. Archer, Dan, “Mergers and acquisitions: change, culture and the “leaderful” organization”, Leadership Trust, UK, 2007
15. Jarrod McDonald, Max Coulthard, and Paul de Lange, “Planning For A Successful Merger Or Acquisition: Lessons From An Australian Study”, Journal of Global Business and Technology, Volume 1, Number 2, 2005 [14] Moran, Pablo &Panasian, Christine, “The human side of mergers and acquisitions: A look at the evidence”, No. 01 Año 3 Enero, 2005
16. Sammer Joanne and Miller Stephen, “Mergers, Acquisitions and Divestitures: The impact on HR Outsourcing, SHRM, September 2005
17. Eilen F., John F., “Leading through transition: Perspectives on the people side of M&A”,USA, 2004
18. Nguyen, H., &Kleiner, B. H., The effective management of mergers. Leadership& Organization Development Journal, 24(8), 447-454,2003
19. Buono, F., & Bowditch, L., the Human Side of Mergers and Acquisitions: Managing Collisions between People, Cultures, and Organizations. Washington, D.C.: Beard Books, 2003
20. Raymond, “Mergers and Acquisitions” MHR 860, Ohio State University Fisher College of Business, January 17, 2002
21. Gupta, D. &Gerchak, Y., Quantifying Operational Synergies in a Merger and Acquisition. Management Science 48(4), 517-533,2002
22. Schweiger, D., M & A integration: A framework for executives and managers.USA: McGraw Hill, 2002
23. Schmidt, J. A. (Ed.), making mergers work: The strategic importance of people. Society for Human Resource,2002
24. Mike Harrison, “HR has a major role to play in mergers”, Personnel Today, September 25,2001
25. Maria Kouli, “Why do mergers and acquisitions fail to create synergy?”, The Executive Issue, Issue 12,2001
26. Vermeulen, F. &Barkema, H., Teaming Through Acquisitions. Academy of Management Journal, 44(3),457-476, 2001
27. Bailey, K., Taking a Byte out of M&A Failure, CMA Management 75(3), 16-19,2001
28. Linda S., The Human Resource Perspective in Mergers and Acquisitions: Non Benefits Issues, 2000
29. Singh, K.A., & Chitranshi, J., Challenges in Retaining Talent Post Merger & Acquisition in India: A Literature Review, International Journal of Innovative Research in Computer and Communication Engineering, Vol.4(10), ISSN:2370-9798, 2016
30. https://www.researchgate.net/publication/228241213_Merger_Acquisition_in_India_An_Analytical_Study