TM - October 2007 - (Page 28) recruitment & retention assessment & evaluation compensation & benefits performance management learning & development succession planning COLLATED BENEFITS: MANAGING MERGERS IN THE PRINT INDUSTRY Daniel Margolis standpoint, one that communicates to employees the value blend of base pay, incentive pay, benefits and career-development opportunities — and results in the sort of worker productivity and engagement that add to the ultimate value of the deal? For health benefits, many firms have increased their level of employee cost sharing, but that strategy isn’t viewed as sustainable. As for DB plans, the cost-saving efforts range from reducing benefit formulas for future service to closing plans to new employees, freezing DB benefits for all employees and even terminating plans, usually replacing some of the lost benefits by shifting dollars to defined-contribution (DC) plans. But such options don’t eliminate legacy underfunding and its attendant risks, although it can take years before the full impact is felt on the financials. And the DC replacement solution isn’t automatically cheaper, unless there is a reduction in benefits. Private equity firms, of course, are looking for rapid change and cost management. Some European private equity firms, for example, have closed established pension plans to future accruals or new enrollments, which is a sure way to roll back benefit costs, and some corporations are doing the same thing, regardless of the potential for damaging employee and community relationships. Although private equity firms might play hardball with benefits and compensation, the new entity will want to consider the broad implications of that approach in terms of employee productivity and retention. Balancing Benefit Strategies RR Donnelley knows about managing benefits after a merger. In 2004, the large commercial printer acquired Moore Wallace Inc., which was itself the product of another merger (between Moore Corp. and Wallace Computer Services Inc.) Acquiring Moore Wallace Inc. meant Donnelley had roughly 53,000 employees onboard. This year, Donnelley acquired three more companies — Banta Corp., Perry Judd’s Inc. and Von Hoffmann Corp. — adding another 10,000 employees. Add all this up, and you have a whole lot of people from different organizations coming together under one corporate umbrella. Managing benefits in the wake of all this is not easy — asked what are the challenges of doing so, Senior Vice President of Benefits and Compensation Heidi Marnoch responded, “Where do I start?” Marnoch was originally with Moore, where she started in 1995. When Donnelley acquired Moore, Marnoch said the first thing to determine was whether one of the companies’ plans would be viable for both, or if there had to be a new plan. The companies’ respective benefit plans were not too different, so they were combined. But Marnoch said such synchronicity is rarely achieved when two companies merge, and benefit packages have to be adopted toward the bottom line. “Clearly, when companies merge, there are going to be economies of scale, and you’re going to go with the plan or the design that best suits the new organization going forward,” Marnoch said. “Our goal after a merger or combination is to try to get all employees on the same benefit plan and cost-sharing arrangement as quickly as possible, knowing that doesn’t happen. It takes time — sometimes, we can’t make employees pay so much more, or we can’t take away benefits or whatever. We have to balance the employee impact versus the needs of the financial organization.” Marnoch said situations such as this might lead to employee pushback if benefits are cut in any way, but she also pointed out that they also offer an opportunity for a company to carefully examine and update its benefits plan, with any luck, improving it. “There’s always going to be a group of people that are going to not like change,” she said. “But while we’ve been merging, it’s also given us an opportunity to look at our plans and come up with plans that better reflect what’s going on in the marketplace.” In the end, managing benefits after a merger can be a real tossup for both the employer and employees — the employer might get a better rate from the insurance company as head count goes up, but it might assume more pension costs, as well. The employee might see benefits improve or decrease. “With mergers and acquisitions, there are always gains and losses,” Marnoch said. “Some will win, and some will see something taken away. Most of the losses are usually cost-shifting measures.” Given the different approaches to transactions private equity firms and corporations have taken, the question remains, “How much can corporate executives learn from private equity firms when it comes to making merger and acquisition transactions successful and managing the post-merger benefits?” Keeping in mind that private equity firms focus on buying, building, managing and exiting over a defined horizon (although exiting is seldom the goal in corporate acquisitions, which usually take a longer-term view), there are some very specific lessons corpo- 28 talent management magazine www.TalentMgt.com http://www.TalentMgt.com
For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.