compensation & benefits integration 4.22.15 · 4/22/2015 · compensation & benefits cic...
TRANSCRIPT
Houston Compensation &Benefits
Post-Deal Integration Planning forCompensation & Benefits
Wednesday, April 22, 2015
PwC
Agenda
• Deal Timeline/Background
• Integration of Compensation and Benefits
– Medical/Retirement
– Compensation
– Equity
– Change of Control Payments
• Integration Project Management
• Contact Information
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PwC
Illustrative deal timeline – HR key milestones
Pre-diligence
Diligence Pre-closePost-close
An integrated M&A approach minimizes transaction risks and maximizes the return oninvestment. By addressing each element of the transaction lifecycle, companies are ableto minimize disruption, maximize deal value and execute in an accelerated manner.
HR receivesConfidentialInformationMemo
Dataroomaccess
Dataroomanalysis
HRmanagementcall HR Stock
PurchaseAgreementinput
TSAnegotiations
Detailedcommunicationsto employees
Launch HRtransitionteams
Managementpresentationswith HRbreakout HR
questionssubmitted
HRquestionssubmitted
HRDiligencefindings
Announcement andinitialemployeecommunications
Selection,Severanceandretentionplans
FinalizeTSAs
Developdetailedtransitionplans
Executetransitionplans
Reportingcadence
3Signing Closing
DiligenceLaunch 3
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What We Are Seeing in Today’s Deals
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Today’s deals are more complex and larger in geographic scope
44% of leaders say they
are engaging intransformational deals
Bigger deals.Larger scale integration
projects.
Bigger deals.Larger scale integration
projects.
Different types ofdeals.
Companies are going outsideof their core competencies
into new markets, channels,and products.
Different types ofdeals.
Companies are going outsideof their core competencies
into new markets, channels,and products.
Stronger stakeholderpressures.
Stakeholders want to seequantifiable deal value
quickly.
Stronger stakeholderpressures.
Stakeholders want to seequantifiable deal value
quickly.
PwC
Common HR integration pitfalls and mitigating strategiesHR touches every business function and virtually all stakeholders
Risk Description
Not getting itdone
• Many sub-work-streams within HR• Need disciplined project management and efficient process and
timeline management
Dependencymanagement
• Many dependencies between HR and other functions• Proactive identification and management of dependencies
Missing Day 1deadlines
• Ensuring continuity of payroll and benefits• Employee visas
Driving the rightbehaviors
• Consult and communicate with employees and representatives• Define and implement performance targets and incentives• Harmonize terms and conditions effectively
Aligning comp &bens
• Identify similarities and differences in total rewards philosophies• Develop guiding principles for the global integration• Reflect statutory requirements in each country• Design post-Closing plans, including transitional arrangements
Missing synergytargets
• Organized process to drive timing and execution of synergies
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Human Resources – functional considerations and lessonslearned
Key Questions Lessons Learned
• How will management identify HRcosts that affect pricing, long-termvalue realization and comprise thenew P&L’s?
• How should management approachensuring NewCo has the right people?How will management ensure theyretain the right people?
• How large a challenge will it be toreconcile country-specific HR databetween the companies?
• What will the benefits andcompensation philosophy and plansbe? How will NewCo get there?
• How will NewCo deal with localregulatory requirements in the USand abroad? How will that impactsynergy achievement?
• Selecting the right leaders and keyfunctional managers is critical toachieve deal success and should becompleted before close.
• HR’s Day 1 priority should beensuring basic services (e.g., payroll,benefits) aren’t disrupted- an earlyloss can impact merger confidence.
• Establishing processes and protocolsfor sharing critical HR data andinformation as soon as possible helpsthe HR team identify data issues andmitigate data migration risks
• Organizational roles andresponsibilities should be aligned asquickly as possible to ensure clarity ofdirection
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Seven Tenets of Successful Integration
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High
Low
Low HighProbabilityof Success
FinancialImpact
Value Drivers
Initiatives are rankedaccording to financial impactand probability of success.Those with the highestfinancial impact and highestprobability of success receiveresource priority.
1. Accelerate the transition.
2. Define the strategy first, then execute.
3. Focus on 20% of work that drives 80% of the value.
4. Prepare for Day One, then the larger Integration.
5. Communicate to all stakeholders.
6. Establish leadership at all levels.
7. Manage the integration as a business process.
Value Driver Selection
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Compensation &Benefits
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Integration: Compensation & Benefits
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Compensation & Benefits Integration
How do you determine what level of benefit plans to offer employees post-close?
Are the plans generally more or less generous post-close?
How important is an overall compensation and benefits “winners and loser”analysis?
What process, if any, do you use to confirm that the final compensation andbenefit options are consistent with the valuation model?
How does the change in employee costs impact your benefit decisions?
PwC
Major opportunities exist to capture short to long-term valuefrom a compensation and benefits integration perspective
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Value Drivers Key Dependencies /Risks
Perspectives
• Identify CIC payments
• Optimize tax treatmentand transition procedures
• Consolidate comp andbenefit plans
• Negotiate savings invendor contract costs
• Refine Total Rewardsphilosophy
• Review actuarialassumptions
• Align compliance policiesand plan governance
• 280G and otherimplications
• Tax implications of equityconversions
• Union and Works Councilapproval
• Potential entanglementswith other work streams
• Sustainability of compand benefit plans
• Consistency in accountingmethodologies
• Identify potentialcompliance issues
• Proactive steps well inadvance of CIC
• Eliminate poorly utilizedor valued benefits
• Economies of scale couldreduce contract costs
• Increased focus onperformance basedcompensation
• Rapid integration andalignment of policies
• Plan governance processshould be aligned DayOne
PwC
Executing an effective integration will require the followingwork-streams within the Compensation & Benefits sub-team
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Workstream Scope
HumanResources IMO
Compensation &Benefits
CIC PaymentsIdentify CIC payments, quantify potentialexposures, identify mitigating strategies andestablish post-CIC processes
EquityCompensation
Assess global implications of convertingawards and develop conversion and go-forward processes
Health & WelfareIntegrate global medical, dental, lifeinsurance, short and long term disability,AD&D, and other ancillary benefits
RetirementHarmonize global qualified, non-qualifiedand postretirement welfare retirement plans
CompensationUnify global compensation plans includingshort and long term incentives
PwC
The answers to a number of key questions will affectintegration scope, planning, and timing of key milestones
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Key Questions
• Is the intention to onboard employees onto Buyer plans without any changes (exceptas required by unions/works councils)?
• Are there any “keep whole” or other compensation and benefit related requirementsin the purchase agreement?
• Are there any requirements from prior acquisitions that could impact the ability tochange benefits?
• How quickly will employees be on-boarded onto Buyer payroll and HRIS systems?
• Are any near-term changes expected to current comp and benefits?
• What is the desired Total Rewards philosophy after integration?
• How will changes in the Total Reward philosophy and employee offering will becommunicated?
• What is the current philosophy on pension and retiree welfare plans? Are plans opento new participants or frozen?
• Are decisions on plan design, accounting assumptions and plancompliance/governance handled locally in any countries?
PwC
Compensation & Benefits Day One Checklist
Day One Critical Tasks
• Set expectations for HR delivery for the near term
• Address and mitigate 280G impact
• Develop process for addressing conversion and administration of equity
awards at Change in Control
• Assess needs for retention agreements or awards for management and
structure arrangements as needed
• Assess certain retirement plans for any potential termination decisions
• Harmonize competency frameworks in order to align activities and
rewards
• Identify regulatory and /or Union / works council requirements to consult
and communicate any changes to programs
• Understand how the transaction does affect the financial security of the
pension schemes and communicate with appropriate parties
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PwC
The integration journey is designed to achieve key outcomesat each stage
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Workstream Pre-Close Day 1 – 100 6 months +
Health &Welfare /Retirement
• Inventory benefitplans
• Understand statutoryand unionrequirements
• Compare benefitshighlightingwinners/losers andcost impacts
• Inventory vendorcontracts,administrativepractices and systementanglements
• Based on new TotalRewards strategy,develop newcompany plan design
• Develop transitiontimeline and identifyany interim changes
• Negotiate withvendors for adjustedfee quotes
• Develop work planand identify owners
• Review accountingmethodologies forpensions,terminationindemnities, gratuityplans etc. andcalculate openingbalances liabilities
• Implement newhealth & welfareplans, or onboard asapplicable
• Merge retirementplans if nocompliance issuesidentified and enrollnew employees
• Establish newadministrativeprocess as applicable
PwC
The integration journey achieves key outcomes at each stage
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Workstream Pre-Close Day 1 – 100 6 months +
Compensation
• Analysis of global comppractices
• Assess labor law risks
• Target’s pay positioningrelative to Buyer’s compstructure
• Develop Total Rewardstransition philosophy
• Harmonize/design newsalary/structure, annualand long-term plandesign, metrics andparticipation
• Model impact of newprograms on individualsand company
• Develop retentionstrategy
• Incorporation ofjobs into HRISsystem; Payrollintegration
• Critical jobsidentified andretention plansdesigned
• Communicatecompensationphilosophy/actions toemployees
• Makecompensationadjustments basedon leveling results
• Evaluateopportunities toredesigncompensationprograms withinpurchaseagreement terms-optimization plans
PwC
The integration journey is designed to achieve key outcomesat each stage
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Workstream Pre-Close Day 1 – 100 6 months +
Equity
• Assess local countryimplications of awardconversions
• Establish processesfor cash-outs,conversions and go-forwardadministration
• Model equity usage
• Integrate vendorand otheradministrativeplatforms
• Manage equitygrant processes
• Determineappropriateness ofequity participationlevels
• Analyze equity usagefor consistency withmodeling and sharepools
Change inControl(CIC)Payments
• Identify all paymentsand quantify worstcase exposures
• Develop mitigatingstrategies
• Formalize processesfor administeringpayments
Process payments,finalize payrollreporting and effecttax provision andreturn impacts
• Prepare final reportwith analysis for useupon audit
PwC
Summary of Integration Best Practices
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Compensation & Benefit Plan Key Considerations1. Transition employees to new benefit plans as soon as possible, or consistent with the
valuation model assumptions
2. Compare the Target and Buyers plans, both from an employer and employee costperspective. Use this comparison to drive post-close benefit recommendations.
3. Evaluate whether the form of benefits needs to change based on the post-close structure.
4. Consider how the timing of benefits migration will impact insurance quotes.
5. Quantify the overall differences between the Target and Buyer’s plans, considering basepay, bonus, equity and employee benefits. Identify winners and losers to ensurecompliance with the Purchase Agreement, and for employee communication messages
5. Consider differences in eligibility
6. Evaluate if pay practices need to change post-close based on Buyer policies or procedures.In general, pay changes are not recommended.
7. Understand the transaction impact on the short term bonus plan metrics, and evaluatewhether changes are needed
8. Recommend retention awards based on the identification of critical employees
9. Determine severance packages for any reductions in force
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IntegrationProjectManagement
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Integration: Project Management
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Project Management
How do you select your ideal team? How are external advisors used?
What is the decision making and governance process determined andcommunicated?
What tools and templates do you find most useful for managing a large scaleintegration project?
How are interdependencies with other work-streams identified and resolved?
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HR deal governance structure
HR Cross-Functional Teams
HR LeaderHR Project Management Office (HR PMO)
HR Project Teams
Project ManagementOffice (PMO)
Stakeholder Communications and Change Management
Organization Design and Workforce Management
Training
Compensationand Benefits
Payroll, T&E,Time & Attendance
HRIS
Talent andOrganizationalDevelopment
Recruiting
HR Organizationand Services
EmployeeRelations
An HR deal governance structure is recommended for efficient execution within the HRfunction and for effective collaboration across the organization.
Roles /Responsibilities
HR ExecutiveSteering Committee
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• Approach
• Methodology
• Monitor progress
• Identify cross-functional issues forHR Team support
• Eliminate barriersto resolution
• Work acrossfunctions
• Rapid businessrequirements
• Prioritize, develop &execute plans
• Mobilize resources
• Escalate issues
• Leadership
• Decision-making
PwC
The HR IMO will manage the interdependenciesacross HR, Talent Alignment, and other enterprise-wide activities
HR
IMO
Comms&
Change Dives-titures
Finance&
Acct
Legal
IT
OrderTo
Cash
SupplyChain
RealEstate
Synergies
Tech-nology
Tax
Examples of InterconnectedActivities
• Workforce and talent needs for allfunctions
• Overall IMO
• Legal entity / tax structure finalization
• HR and Legal
• IT and Finance Day 1 / Day 2operating model
• Communications – integrationstrategy and internal / externalmessaging
• Tax and structuring team: make sureteams consider HR and legal issues
• Global Compensation & Benefits
• Talent Alignment – enterpriseorganization design guiding principles
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PwC
Approach for HR Synergies
Deal Close
Tool used fortracking andreporting synergyachievement basedon quantitativeinformation frombusiness cases
Detailed projectplan for each ValueDriver initiativebased on qualitativeinformation frombusiness cases;includes tasks,resources, dates,and deliverables
Ou
tpu
tsT
ime
lin
e
HR IntegrationExecution
Initial financialmodel based onlimitedinformation andset of assumptions
Detailed business casefor each Value Driverinitiative, includingqualitative andquantitativeinformation based onextensive analysis andinformation
Synergy Model Business Cases Workplans Synergy Tracker
HR Integration Planning
An integral part of HR IMO planning will be the individual sub-teams calculatingsynergies and aligning with the IMO process to achieve and track synergies
Synergy
AnalysisValue Driver Analysis
Value Driver Execution /Synergy Tracking
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ContactInformation
PwC
Contact Information
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Steven SlutskyPrincipal+1 267 330 [email protected]
Dwight BlackmanDirector+1 312 298 [email protected]
Robert PeschManager+1 713 356 [email protected]