HR leaders manage the human side of business transactions during the due diligence, deal close, and business integration stages. The strategic questions about how a new business target aligns with business objectives related to growth in new products or services, accessing new geographic markets, and/or recruiting mission- critical talent have already been answered during the research to identify the business target. During due diligence, the focus is on uncovering any red flags (if any) that may end the discussions for a host of different reasons. Once there is a definitive agreement signed to pursue the acquisition, the terms of the purchase are detailed with specific buyer and seller responsibilities. Then the heavy lifting begins with business integration to realize the intended business synergies.
The focus on successful mergers and acquisitions (M&A) transactions have shifted on the need for more effective business integrations. As HR leaders, the human side includes assessing the caliber of mission critical talent and the similarities and differences of the organization structure and the total rewards. These HR responsibilities are generally carried out in tandem with cross-functional teams from both sides working together to create a roadmap with timely milestones.
Let’s continue with an example using a recent M&A announcement on May 9, 2016. The Arizona- based Freeport-McMoRan Inc., entered into a definitive agreement with a Chinese mining-and-processing firm, China Molybdenum Co., Ltd., to sell for $100 million its interests in Freeport Cobalt, including the Kokkola Cobalt Refinery in Finland, which has a large-scale cobalt refinery located in Kokkola, Finland.
As the HR leader with the buyer, China Molybdenum, you want to assess the total rewards programs, understanding the statutory requirements and competitive practices, and then compare those findings to the actual programs at the two organizations. Some first steps in the total rewards integration with the compensation structures include normalizing the job levels, titles, and associated pay grades.
Compensation programs as a point of integration serve to inform both sides of the similarities and differences of functions. This should be done relative to local practices and the global business strategy by reviewing internal and external data. The internal data should be available from the HR department HRIS group. The external market data can be pulled from your market analysis tool by first identifying the benchmark jobs that exist in Finland and setting the geographic locations to create a comprehensive analysis. Below are examples of the reports and analyses for the compensation levels of various mining job.
ERI's Global Salary Calculator - Advanced Reports tab
The external data benchmark jobs identified include Engineering Technician, Associate Engineer, Mine Engineering Supervisor, Drill Operator, Mine Captain, Mine Electrician, Mine Construction Worker, and Mine Geologist. Now you can combine the market data with the internal data to conduct some variance analysis of local differences to the local markets.
By exporting the data to MS Excel, you can compare the actual average salaries of your employees and the salary structure pay grades midpoints relative to market average to determine the degree alignment across the two organizations. Based on this preliminary analysis, the Associate Engineer benchmarking job matching and results should be reviewed as well as the Mine Electrician. There may be an internal business reason for these variances or perhaps the jobs were not appropriately matched externally and across the two locations. Further financial analysis is then conducted by converting the Finland analytics currently in Euros to Chinese Yuan to normalize the overall costs to one currency.
Continuing with this example, Freeport-McMoRan also agreed to sell its stake in an African surface-mining operation in the Congo to China Molybdenum Co., for $2.65 billion in cash, as Freeport looks to pay down debt. The Congo operations employ about 3,400 full-time workers and 4,200 contractors. A challenge for some organizations is establishing cohesive work groups integrating the employees from the acquired entity. Given the size of the operation in Congo, it is likely that China Molybdenum will send a few key business leaders on an expatriate assignment to the Congo in order to manage the newly acquired site and train local leadership on the processes of the new parent company.
Identifying the right individuals as well as providing a reasonable financial relocation package are essential when initiating an expatriate assignment. This staffing decision may be a promotional opportunity for the managers identified suitable for the roles. When a move includes both a promotion and expatriate assignment, it is best to follow a two-step process. First, determine the promotion and associated compensation increase. Using ERI's Global Salary Calculator, let’s benchmark the job of General Manager in China, which will be the new job for promotion.
ERI's Global Salary Calculator - Salary tab
First, we selected the benchmark job description of General Manager and the location of Beijing China. This results in the average salary benchmark of 386,379 Chinese Yuan. This pay level can be used to evaluate the promotional increase associated with the assignment. Since the individual is likely top talent in the organization, the benchmark also provides the 75th percentile salary benchmark to consider a higher promotional range. After reviewing this benchmark relative to the current pay level and internal pay ranges, the new salary may be set to 500,000 Chinese Yuan.
After completing the promotion recommendation, the relocation package needs to be evaluated. Using ERI's Relocation Assessor, a relocation offer with itemized cost-of-living differences can be analyzed to understand the cost implications for the employees and the organization. This type of information can be invaluable for the employee.
ERI's Relocation Assessor - Two City Comparison tab
ERI's Relocation Assessor default assumptions include renter housing expenses, single person family household, 1 car, and "professional" lifestyle spending patterns. Inputting earnings of 500,000 Chinese Yuan as the earnings level and selecting base city Beijing, China, with a corresponding destination city of Matadi, Congo, the cost of living in the Congo is 24.1% less than in China. Most of this differential is represented in lower cost in housing in the Congo. This type of analysis is a helpful starting point to begin discussing the move to the Congo with the respective employees.
For HR leaders of global organizations, the increased complexity of labor market differences coupled with the synergies required to create one combined organization can be challenging. Executing effective business integration requires having the right resources and tools in place. Aligning compensation structures and making some immediate staffing decisions to get the right employees in the right role at the right time are essential. For more information about this topic and compensation benchmarking, call us today at 1-800-627-3697, and one of our best in class service team members will assist you.