RAHUL GOVIL(7)

NEHA GUPTA(8)

CHARU SINGHAL(23)

SUDARSHAN K.P(27)
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ACKNOWLEDGEMENT

We would like to express sincere gratitude to Mr Shrivastava (Retired GM, SBI) for his valuable time
in this pursuit of ur knowledge on certain key issues facing the HR managers in times of Mergers and
Acquisitions. We are indebted to him for we clearly understand how busy his schedule is.

We are also grateful to Professor Premalatha, faculty, Essentials of HRM for providing us this
opportunity of carrying out this immensely enriching activity.

Last but not the least, our parents for blessing us and guiding us at every step in our pursuit.
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TABLE OF CONTENTS
INTRODUCTION 3

ABSTRACT 4

M&A- INTRODUCTION 5

SUCCESS RATE 7

HR-7 STAGES MODEL 7

HR- 3 STAGES MODEL 13

OTHER HR ISSUES 14

CRITICAL SUCCESS FACTORS 15

4 CHALLENGES 16

LIVE CASE SBI 21

CONCLUSION 22

REFERNCES 23
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INTRODUCTION
The Mergers and Acquisitions, while presenting an opportunity for the financial
consolidation for the organisation, also creates an alternative requirement for synergy
creation between employees to sustain the required consolidation. There have been instances
in the past where the people if neglected have been primarily responsible for not fulfilling of
the potential a merger or an acquisition presents.

This report is an attempt to understand the problems and challenges faced by HR managers in
times of mergers and acquisitions and have an industry insight by considering the problems
as witnessed in the banking sector.

The bank in picture is State Bank of India, which has been taken up an example to understand
what the problems are perceived by practitioners in the real time.
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ABSTRACT
Mergers and acquisitions are part and parcel of big business. In an ideal merger, the newly
created entity pools the best features of the two merging organizations. Mergers and
acquisitions (M&A) are increasingly being used by firms to strengthen and maintain their
position in the marketplace. Today, it is widely accepted that the way in which HR issues are
handled is critical to the success of any M&A. It is seen that, most M&A failures can be
traced to poor support of HR-related issues and activities. An unsuccessful M&A integration
process may have huge detrimental effects on a company, including loss of key personnel, a
decline in employee productivity, reduced job satisfaction, communication breakdowns, and
resistance to change. This report will discuss how companies use M&A as a growth strategy,
common reasons for M&A failures and successes, HR practices are critical to success.
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Mergers and Acquisitions (M&A) – An

Introduction
Mergers and Acquisitions (M&A) have become the preferred route for expansion and
Consolidation. The unshakeable and rock solid companies aspiring to emerge as significant
players on the global stage, are scouting to acquire prospective and attractive companies,
gasping for survival due to the mounting competitive pressures. Mergers and acquisitions
represent the ultimate in change for a business. No other event is more difficult, challenging,
or chaotic as a merger and acquisition.

A merger can be defined as a situation when either two or more independent companies
merge, or when one or more persons already controlling at least one company acquire direct
or indirect control of the whole or parts of at least one undertaking. Whereby in a merger, the
two or more companies create a new entity and in an acquisition, the acquired company loses
its economic and legal autonomy . The term "acquisition" refers to the acquisition of assets
by one company from another company. In an acquisition, both companies may continue to
exist. The acquiring company will remain in business and the acquired company (which we
will sometimes call the Target Company) will be integrated into the acquiring company and
thus, the acquird company ceases to exist after the merger.

The literature sources [e.g. Jansen 2000; Haspeslagh/Jemison 1991] most frequently identify
three phases of a merger or an acquisition.

The idea or preparation phase explains the need for a merger or an acquisition, which is given
by the company's objectives and desires. The second phase includes the search for an
appropriate target company, the valuation, legal and financial negotiation. The last phase,
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integration, consists of fusing the two companies into one. Since the speed of competition in
many industries has made organic growth seem excessively time-consuming, many managers
consider acquisition to be an attractive mean to expand a firm's knowledge base quickly.

From a global perspective, the rest of the world is also beginning to see increased merger and
acquisition activities. We can see from the chart below that in the Pacific Rim alone there is a
substantial amount of activity -

Mergers and acquisitions are a growing trend, and analysts don't see any downturn over the
next 10 years. Therefore, we need to look at how human resources professionals can assist in
the success of an acquisition. In the long run successful mergers and acquisitions occur when
both sides are open to new possibilities.
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Merger & Acquisition Success Rate

It might be more accurate to use the term failure rate rather than success rate. Industry
analysts agree that the failure rate of mergers and acquisitions is somewhere between 40%
and 80%. A lot of sources average it out at 50%. Even more shocking is that if we think of
failure as not increasing shareholder value, then the numbers look worse, with the higher end
of the scale being 83%. This means that 83% of the companies do not ultimately see the
returns that were projected for the merger or acquisition after a 3- to 4-year period.

Research also suggests that up to 65% of failed mergers and acquisitions are due to 'people
issues' that result in poor productivity.

HR in Seven Stages of Mergers and Acquisitions

McCann and Gilkey (1988) have developed a seven-step model of the merger process that
provides a useful framework for considering the difficult human resource problems that may
arise in any merger or acquisition. The first five steps occur in the pre-merger stage and the
last two in the postmerger stage.

The Pre-Merger Stage

Strategic Planning and Organization

The first step is strategic planning in which the acquiring firm develops its mission statement
and determines the type of merger or acquisition that will be sought and how it will achieve
corporate objectives. In the next stage the firm is primarily concerned with organization—
creating a specific team to manage the M&A activity. In their eight-year study of mergers and
acquisitions, Marks and Cutcliffe (1988) found that corporate executives generally failed to
integrate human resource aspects into the merger process, perhaps because they were not
familiar with the appropriate methods of managing the change in their organizations or
because they did not realize that the merger might have a significant negative effect on their
employees. Consequently, financial and legal concerns dominated the pre-merger stage, and
human resource managers, who could have provided advice on managing the human side of
the transaction, were seldom included in the core planning group. Similarly, Bohl’s (1989)
survey of 109 companies with active M&A programs found that the human resource function
had not played an important role in the pre-merger planning in about two-thirds of companies
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reporting post-event problems, while the same was true in only about half of those reporting
no problems.

With such results in mind Fombrun, Tichy, and Devanna (1984) stress the need to include
human resource managers in the core strategic team. Because ‘people problems’ are a
primary source of poor M&A performance, including HR managers early in the decision-
making process is an important part of any M&A strategy (Marks and Mirvis 1986; Marks
and Cutcliffe 1988; Tichy and Ulrich 1984).

Searching
Searching for potential acquisitions and thoroughly investigating the merits of each is the
third step of the merger process. Of particular relevance to HR are the results of Schweiger
and Weber (1989) who found in a survey of 80 firms that the most important factors in
evaluating potential acquisitions were the talent and management philosophy of the acquired
top managers and the talent of the acquired middle managers. Similarly, McCann and Gilkey
(1988) and Walsh (1989) note that most M&A’s are undertaken partly to capture the valuable
asset of a qualified management team. The retention of management thus becomes a key
factor in the success of a merger or acquisition.

Analysis and Offer

The fourth stage of the merger process is analysis and offer, in which a primary objective is
to evaluate the ‘fit’ of the two firms. McCann and Gilkey (1988) identity three types of fit—
financial, business, and organizational fit—that must all be present if the merger or
acquisition is to be successful. For the purposes of this study, organizational fit, which
includes human resources and the two organizational cultures, is of primary importance, since
it helps to determine how well the two firms can be integrated. McCann and Gilkey suggest
that ‘the greater the differences between the two firms in these areas, the greater the difficulty
in achieving the desired level of integration . . . and in realizing business synergies which will
ultimately show up in financial performance’.
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The Post-Merger Transition

The last two stages in a merger or acquisition are the transition and integration. These two
stages are the most complicated and are surrounded by the highest level of uncertainty. The
transition stage is in fact the most poorly managed of all, and consequently it is the stage
where most failures occur (McCann and Gilkey 1988).

A Delicate Balance
Management of the transition stage requires a delicate balance between providing a
stabilizing influence and creating a climate for change. Uncertainty and anxiety, anger,
frustration, psychological withdrawal and family disruptions are pervasive during M&A
activity (Schweiger, Ivancevich, and Power 1987). Those who voluntarily leave their
company indicate that uncertainty leads them to do so early in the acquisition process (130).
The importance of transition management is further emphasized by Beatty (1990) which
shows that negative employee reactions and behaviours are more common in failed
acquisitions than in successes (21).

Insecurity and Anxiety

Negative employee feelings and behaviour are typical responses to threatening situations
(Dyer 1983)—in this case, job insecurity.

The magnitude of the response will be determined by the employee’s perception of the
severity of the threat and the degree of powerlessness to counteract it, which will in turn be a
function of his or her confusion concerning the expectations of the new firm. For example, if
employees are unaware of how they will be evaluated for the retention decision, feelings of
powerlessness will be high. Since information is generally scarce in the transition stage, the
employee’s perceptions will be influenced predominately by rumour and speculation.
Greenhalgh and Jick (1979) found a positive correlation between job insecurity and resistance
to change (see also Staw, Sandelands, and Dutton (1981)). Individuals faced with a
threatening situation exhibit strong attachment to previously learned behaviours, even if they
are inappropriate.

Since the transition stage in the merger process is supposed to facilitate change, high levels of
uncertainty are clearly counterproductive.
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Unanticipated Turnover
The predominance of negative attitudes caused by uncertainty often leads employees to act
on the worst scenario and begin updating résumés (Greenhalgh and Jick 1975). The most
valuable employees— those that the post-merger corporation can least afford to lose—tend to
be the first to leave the organization. For example, when Fluor Corporation acquired St. Joe
Mineral in 1981, in a deal costing $2.2 billion, the large-scale migration of key managers
following the acquisition contributed to millions of dollars in losses at the previously
profitable St. Joe (Shrivastava 1986). Estimates of unanticipated turnover suggests that 47
percent of top executives in an acquired firm leave within the first year and 75 percent within
three years. Within five years 58 percent of all managers leave (Walsh 1989, 313), and it is
often the managers with the best performance histories who leave early on (Walsh and
Ellwood 1991, 215).

If there is no planned intervention strategy to deal with negative feelings and behaviours, the
long-term behaviour of employees who do remain with the organization may be affected,
significantly reducing the likelihood of a s uccessful post-merger integration (Marks and
Cutcliffe 1988). ‘More than any other issue, how you handle employees in the first three to
six months will set the tone for future relations between the two firms’ (McCann and Gilkey
1988, 65).

HR Interventions

Several authors have suggested how to reduce the incidence of counterproductive behaviours
(Bridges 1988; DeNoble, Gustafson, and Hergert 1988; Marks and Cutcliffe 1988).
Preliminary interventions target emotional support, and may begin while negotiations are still
underway. Activities in this phase are focused on providing stability. Other techniques are
intended to create a positive environment for change by decreasing the level of uncertainty
and fostering realistic expectations for the future. Feelings of powerlessness on the part of
employees are reduced by providing information to determine how (or if) the threat to job
security can be counteracted. Commitment to the new organization may be fostered if the
employees are encouraged to see that career opportunities are available and continued success
is possible in the new organization (Schweiger, Ivancevich, and Power 1987).
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The Post-Merger Integration

Changes that are designed to capture synergies are implemented in the integration stage. This
phase is most often poorly managed (DeNoble, Gustafson and Hergert 1988; Schweiger and
Weber 1989; Shrivastava 1986).

Procedural Integration

Procedural integration is designed to standardize work procedures and improve productivity.

Since each firm has its own systems and procedures, combining the two requires that some of
the old ways are abandoned. Marks and Mirvis (1986) suggest that where the system of the
dominant firm is adopted over that of the subdominant, it may be understood to imply that the
former is superior and that its people are wiser and more able. After a series of such ‘losses,’
the subdominant group will lose it’s organizational identity, and conflict both within and
between the groups will result. For example, after Texas Instruments merged with M&C, it
attempted to transfer its sophisticated plan- ning and budgeting system to the more informally
run M&C. However, this action resulted in a drop in performance and resistance to the
change. It took several years for the new system to stabilize, and even when it did, the
performance level was far from optimal (Shrivastava 1986, 68).

The dominant firm often attempts to centralize the control function within the acquired firm,
particularly with respect to expenditures (McCann and Gilkey 1988). The approach can
create problems, however. Hayes and Hoag (1974) found that two-thirds of the managers
who left behind acquired firms did so because of loss of autonomy and control. Kitching
(1967) discovered that in 81 percent of ‘failed’ M&A events, the organization’s reporting
relationships and/or the degree of managerial autonomy were disturbed at least once after the
acquisition event. Similarly, Bohl (1989) found that of companies reporting no post-event
problems, 41.8 percent had left the management structure unchanged. Of the companies
reporting problems, only 13.0 percent did not alter the management structure. When key
functions were centralized in the acquired firm, problems such as higher absenteeism and
turnover and lower productivity were nearly twice as likely as when no change was made.
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Physical Integration

Physical integration is intended to use the mutually exclusive assets of the two firms as the
basis for capturing synergies. Some common assets will become redundant and workforce
reductions may take place.

Schweiger and Weber (1989, 82) found that 75 percent of the organizations they surveyed
had terminated employees following a merger or acquisition event. Workforce reductions
frequently lead to subsequent problems, however. In one study 70 percent of the companies
that had downsized following a merger or acquisition reported one or more post-event
problems, compared with 40 percent of the companies that had retained all their workers
(Bohl 1989, 27). After downsizing, considerable uncertainty and frustration may be exhibited
among remaining employees, who may feel that the termination decisions were based on
unclear or inappropriate criteria (Schweiger, Ivancevich, and Power 1987). One policy in
particular—the automatic elimination of redundant positions—correlates highly with post-
event problems. In one study, two-thirds of the firms that adhered to this policy encountered
post-event difficulties (Bohl 1989, 28). Policies that created fewer problems included
automatic retention of all employees wishing to stay, one-on-one interviews with employees,
and retention of employees meeting specific criteria (31).

Organizations that make a series of cuts tend to keep the employees’ anxiety focused on
personal survival with no sense of where the cuts would come next (Fombrun, Tichy, and
Devanna 1984). The result is a ‘vicious cycle of disintegration’ in which a first set of cuts
leads to declining morale and lower performance, which in turn leads to a second round of
cuts and further decline in morale and performance (Behn 1988, 349). Consequently,
numerous authors (e.g. Leana and Feldman 1989; Hardy 1988; Frombrun, Tichy, and
Devanna 1984) advocate a single reduction in the workforce, based on a solid understanding
of the anatomy of the organization.
The manner in which the workforce reductions are undertaken has a significant impact on the
organization’s success in managing the survivors: how employees are terminated is often
interpreted by the survivors as an indication of how they can expect to be treated by the new
company (Schweidger, Ivancevich, and Power 1987; Schweiger and Weber 1989;
Golembiewski 1979).
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Sociocultural Integration

Sociocultural integration is the final and most difficult task in a merger or acquisition.
Because the o rganizational culture is part of the employee’s identity (Harshbarger 1987), a
failure to address culture issues may lead to a loss of commitment among employees and may
result in lost opportunities to retain qualified personnel and motivate individuals (Schweiger,
Ivancevich, and Power 1987, 130).
According to Marks and Mirvis (1986) the most important source of conflict in an acquisition
is the clash of cultures that occurs when the dominant firm attempts to subvert the formal and
informal organization of the acquired firm. There are three main reasons for this conflict: the
power differential between the two groups, the unidirectional flow of culture from the
dominant group, and the active resistance to a loss of culture in the acquired firm (Sales and
Mirvis 1984). On the question of how soon changes in the acquired company should be
implemented, some commentators favour the quick approach, arguing that it will minimize
uncertainty for employees. For example, Buono and Bowditch (1989) point out that
employees are expecting change following a merger or acquisition and thus are more likely to
accept relatively radical changes in the immediate post-event period. On the other hand,
Shrivastava (1986) suggests that integration should be phased in over time to avoid the
shocks associated with changes in ownership. But Marks and Mirvis (1986, 72) warn that
while dominant firms tend to move quickly to ‘consolidate their gains,’ this aggressiveness
can have such a negative impact on the target firm’s employees that the acquirer loses any
benefit. McCann and Gilkey (1988) also advise against radical change until problems of
organizational fit are better understood. Surprisingly, however, Schweiger and Walsh (1990)
report that so far there has been no research that specifically examine

HR in Three Stage Model of Mergers and Acquisitions

Merger and acquisitions are strategic alliances. Merging two companies with their different
policies, procedures, and culture will create stress for all the people involved. The 'survivors'
from both companies will have to deal with new people, new procedures, possibly more
work, and the loss of previous co-workers and friends. In case of M&As the role of HR starts
from stage 1 to the end till a new identity is created.
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The first phase is the Pre-Merger which includes the planning of the merger and acquisition.
There are many Human Resource issues along with other issues in the first phase. One of the
issues that can be arisen in the pre-merger is to identify the reasons behind the Merger and
Acquisitions. The pre acquisition period involves an assessment of the cultural and
organizational differences, which will include the organizational cultures, role of leaders in
the organization, life cycle of the organization, and the management styles. The mergers often
prove to be traumatic for the employees of acquired firms; the impact can range from anger to
depression. The second stage of integration in an M&A activity is extensive and complex.
Whereas Stage 1 activities set the scene for M&A activity, those in Stage 2 are the ones that
make the activity come to life. Clearly there are differences between a merger and an
acquisition, differences between a merger of equals and non-equals, and differences between
an acquisition with inclusion and an acquisition with separation. Then comes the last phase
that is the solidification of the new entity. As the new combination takes shape, it faces issues
of readjusting, solidifying and fine-tuning .On the third stage, HR issues like solidifying
leadership and staffing, assessing the new strategies and structure, assessing the new culture
are the main issues  which an HR Manager is likely to face.

OTHER HR ISSUES

People management plays a critical role in M&A. People issues like staffing decision,
Organizational design,etc are most sensitive issues in case of M&A negotiations, but it has
been found that these issues are often being overlooked. The range of key issues that HR
needs to address if the chances of success are to be optimized includes:

 understanding, prior to embarking on acquisition, the strategic rationale underpinning

the deal, together with the external constraints and opportunities
 ensuring that cultural due diligence is carried out prior to a deal, so that effective
integration programmes can be implemented immediately post-deal
 moving quickly but fairly in the appointment of new management teams at all levels
in the business, and dealing humanely with the casualties
 identifying realistic synergy targets, and exercising caution in estimating both the
timeframe and the potential cost of redundancies
 ensuring that due diligence provides comprehensive data on all aspects of reward, and
that the costs of harmonization or 'pragmatism' are factored into the deal
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 establishing early a flexible project management process, and ensuring that it has the
necessary time, resources and processes to manage the transition
 communicating consistently, truthfully and when necessary
 HR being integral to the M&A process from the outset as a credible business-partner
offering practical, financially astute and timely solutions.
 Expectations are unrealistic
 Hastily constructed strategy, poor planning,
 unskilled execution
 Failure/inability to unify behind a single macro message
 Talent is lost or mismanaged
 Power and politics are the driving forces, rather than productive objectives
 Requires an impossible degree of synergy
 Culture clashes between the two entities go unchecked
 Transition management fails
 The underestimation of transition costs
 Financial drain
 Defensive motivation

M&A's carry quite a burden for HR. As well as getting its own house in order – integrating
HR programs, reconciling redundant HR functions and working through two service and
technology strategies – it must also support and help other departments through their own
individual transitions. As such, while the integration of the HR function, its systems and
people programs is integral to a successful merger.

Critical success factors(Article by Mercer)

In Mercer’s experience working with Indian companies, there are four major challenges that
emerge as critical success factors in M&A transactions:

1. Tackling employee liabilities, statutory compliances and union issues

2. Employee retention and the leadership challenge
3. Rising labor costs
4. Organizational culture issues
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These four challenges span all stages of the deal:

 Unfunded or under-funded liabilities pertaining to retirement benefits;

commitments arising from union settlements and severance agreements; and any statutory
compliance gaps on a blue-collar workforce can significantly affect the deal price and/or
attract legal penalties.
  
 Potential leadership challenges or loss of key talent can erode the value of the deal in
the closing or integration stages.
  
 India’s rapidly escalating salaries and the difference in salary structures compared to
the rest of the world need to be accounted for while planning and executing an effective
integration.
  
 The enormous organizational cultural diversity of India, both within and when
compared to acquiring companies from other geographies, must be actively managed to
mitigate potential friction, misunderstandings and
loss of employee engagement and productivity.

We will address each of these four major challenges individually. 

1.Tackling employee liabilities,statutory compliances and union issues

Defined benefit pension plans are less common in Indian companies. However, companies
that have been in business for a longer time often have defined pension and/or health
benefits.Though it is mandatory for companies to make provisions for potential liabilities
arising from this in their books, a thirdparty valuation can uncover significant under-funding
that may need to be adjusted against the deal price. Furthermore, the provisions in the
structure of various retirement trusts may need to be amended to allow the smooth integration
of differing benefit schemes of the buyer and seller.
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On the organized labor front,compliance with statutory benefits pertaining to “Workmen” as

defined by the Industrial Disputes Act, along with taking stock of union settlements, protects
the buyer from unpleasant surprises at a later stage including financial obligations for:

  

a. Overtime wages to workers

b Minimum wages as per Government stipulated rates

.

c. “Perennial employment” claims where temporary contractual workers who have been
continually working for the company can claim for permanent employment at
considerably higher wage rates 

Each of these could have substantial impact on the deal price since the errant company could
be legally obligated to make up for years of non-compliance on a retrospective basis. If such
issues are discovered after the deal is signed, the financial obligation becomes the buyer’s
headache and can erode the value of the deal. Therefore, any threat of legal penalties arising
from such noncompliance needs to be offset through inclusion of suitable indemnities in the
purchase agreement or cleaned up by the seller before the deal is  signed. Similarly, in a
unionized scenario, restrictions in union settlements related to wages, employee movement or
productivity enhancement may need to be renegotiated, even before the deal is signed or
immediately after closing. 

Despite overall economic growth during the last 15 years, employment laws and labor and
union regulations have remained virtually unchanged and they continue to provide significant
protection for employees. For example, it remains easy to form a union, requiring the
signature of only seven people. Also, the Industrial Disputes Act prohibits restructuring and
redundancies without employee involvement. These limitations are often a surprise to buyers
from outside India who expect the development of the human capital environment to have
kept pace with economic development.

There are some signs of change and other ways to manage through these restrictions. Unions
are beginning to show somewhat less resistance to change. A recent Supreme Court decision
held that the right to strike is not fundamental, but rather requires that strikes follow due
process to be legal. In some industries – pharmaceuticals and technology being the best
examples – this “traditional” human capital environment is less of an issue because the talent
 P a g e | 19

is relatively mobile. Buyers can often find a different route to the same end. For example,
unions are generally not an issue in joint ventures, making this a common form of
transaction.And early retirement programs have been used as an alternative to more direct
redundancy plans.

Case Study

The hidden challenge of labor laws and compliance came to light in a recent deal in
India. A global Fortune 500 company had completed their financial and legal due
diligence, and the deal to acquire one of the businesses of a closely held, family-owned
business group was just a few weeks away. Mercer was called in to conduct a
comprehensive “HR-focused” due diligence, and one of the startling facts to emerge
was non-compliance with labor laws, which could have impacted the deal price by 5
percent to 10 percent, as well as led to serious litigation issues with regulatory agencies.
The acquiring company learned that it is important to pay close attention to
employment law and labor issues, especially when dealing with the manufacturing
industry.
 

2. Employee retention and the leadership challenge

Those employees who have both intimate knowledge of local markets and strong
relationships with customers make key employee retention an imperative for realizing the
value of the transaction. The loss of key talent in a highly competitive, labor-deficient market
can, at minimum, delay realization of the transaction value. In the same study, the EIU
identified talent shortages and retention issues as the greatest risks in China, India and
Southeast Asia. In Mercer’s experience, identification of key employees early in the deal and
putting in place a “balanced” (with both shortterm and long-term incentives) employee
retention strategy and performance measurement plan can go a long way in ensuring
continuity of “business as usual” and ensuring people synergies – i.e., the full engagement
and productivity from employees.
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While retaining key employees allows the buyer the necessary means of executing their
M&A strategy, the clear focus is on leadership. With infusion of cash and scale (i.e.,
becoming more global), the immediate business need is often to identify, assess and retain
leaders who can take the business to the next level. This is especially true for “out-in” deals
where the playground shifts from India to the global arena.

3. Rising labor costs

 Given both the rapidly escalating wage costs and the tightening labor market in India (4),
acquirers must have an understanding of potential idiosyncrasies in the compensation
philosophy and structure of the Indian target. According to Mercer’s Global Compensation
Planning Report,employees in India’s corporate sector are likely to see salary increases of
14.1 percent on average in 2008, compared to forecasts of up to 2.7 percent for Western
Europe, up to 3.8 percent for North America and 2.5 percent for Japan. This has been the
trend over the past few years. And in India’s research and development sector, the average
cost per employee rose 16.2 percent annually in the past three years.(5)

Additionally, the presence of expensive executive compensation packages and golden

parachutes can add up to considerable numbers. An added complexity is the fact that Indian
salary components and benefits (i.e., multiple cash allowances for housing, rent, car,etc.)
often differ considerably from those in the West. A clear understanding helps deal makers
avoid potential mistakes. 

In short, acquirers in this market need to factor the compensation scenario of India into their
deal prices, in order to build innovative variable pay-driven rewards models as an effort to
control wage costs during integration (especially in the software industry where base pay in
India for certain job skills is dramatically increasing) – so consider variable pay options like
deferred bonuses or a cash-based bonus based on performance (every six months or even
every quarter).According to findings from Mercer’s Asia Pacific Total Rewards Survey 2007,
though Indian employees continue demanding higher salaries,they are increasingly attracted
to companies providing career growth opportunities and where senior leadership serve as
“rolemodels.” Any liabilities arising out of severance arrangements can be potentially offset
against the deal price if detected early enough in the pre-deal phase.
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4. Organizational culture issues 

The EIU report cites cultural differences between organizations as a high-risk area for deal
makers in the Asia- Pacific region. This is especially true for a culturally diverse country like
India. There are 22 official languages spoken across 28 states and 7 union territories.
According to the 2001 Census of India, 29 languages are spoken by more than one million
native speakers, and 122 by more than 10,000. Customs, ways of doing business and working
styles differ significantly between regions.

Needless to say, there is urgency in an acquisition or joint venture to establish common

elements that will define new ways of working. Companies acquiring in India have typically
heard about the changing environment in the country, but they may not know that these
changes do not take place evenly. For example, companies in northern India tend to have
more assertive, arguably more “Western” cultures, while companies in southern India tend to
be more traditionally “Indian” (i.e., a more formal and subtle culture, emphasizing protocol
and indirect communication).Buyers should understand these differences across several
dimensions; in addition to geography, they should consider language, local customs and
industry – because the company they are considering purchasing or partnering with will
certainly be influenced by these. 

The peril of not involving local HR or advisors on the ground during the due diligence
phase came to light in a recent transaction. This particular deal was driven by the
acquirers’ need to operate and scale up operations in a “low-cost location” such as
India. While the strategic business drivers for the deal were globally sound, the
company in India was largely driven by people costs. Post announcement, the acquirer
discovered that the target had a very highcost employee base – in fact 25 percent higher
than expected. Unfortunately, the acquirer had overlooked this during the due diligence
phase. This unexpected cost significantly influenced future plans to grow the business.
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LIVE CASE OF SBI BANK:

In a telephonic conversation with Mr Shrivastava, (retired GM ,SBI). The major challenge in front of
the HR manager is to create a win -win situation for the employees of the both the units in a merger.
The Win-loss condition can prove counterproductive in times to come, and would hamper the growth
of a single entity which would come into existence.

The Weaker organizations in the times of mergers face a potential identity crisis and the employees
have fears that how well they will be accorded responsibilities after the entire process settles down.
Such anxieties to be rested require the negotiations with the Unions in specific cases and also are
taken care by the “law of land”.

In Law of land, there are certain specific laws which need to be complied by, to protect the interests of
the weaker unit in a merger. In such situations the image of the company is also very important as to
how is it perceived.

Human skills and negotiations skills come to the fore in selling the benefits of a merger and ensuring
that the merging employee base feels as secure as they used to in the previous environment settings.

This is very important because the coming in workforce will be contributing towards the bigger goal.
The merged entity will be 1 unit and this has to be clearly put across to the workforce so that they are
able to see the bigger picture and are able to see themselves as a part of this bigger picture.

The various points of contention also include :

 Entry Grade decision

 Salary revision policies
 Perks
 Posting Policies
 Promotion Policies
 Retirement age acceptance
 Training & Development policies
 Cultural Transformation
 Service rules
 Discipline rules
 Leave Policy

“The Employee base, gets comfortably accustomed to a particular environment”, says Mr Shrivastava.
“It is the change from that setting, which is a little difficult to convince about.” According to Mr
Shrivastava, the HR faces a mammoth task of striking a middle path between the best of both the units
in a merger. The employees would prefer the best of both the units but it is sometimes not possible.
While quoting an example Mr Shrivastava observed that in the merger between SBI and another bank
(name not disclosed) the terms were such that in SBI you could either get a PF or avail for the
Pension, which was a little difficult for the merging bank to come to terms with. Hence the work of
the HR manager in deciding in such cases of conflicting policies becomes a challenge to handle.
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Conclusion
When going through M&As organizations usually focus primarily on the financial, economic
and commercial aspects of the deal, and often only as an afterthought on people.
Contradictory really, as most senior executives recognize that people are their greatest asset,
but they just seem to overlook this mantra in the heat of a deal .The HR issues need to be
treated as a key component of any merger, not on an ad hoc basis as they arise. The key to
successfully managing many integration issues is effective communication. This entails
devising a comprehensive communications strategy and implementing it with care and
diligence. From the outset of negotiations, HR managers need to work with senior
management to identify and troubleshoot these potential problems.
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References

 http://www.ewin.com/articles/manda.htm
 http://www.citehr.com/159633-mergers-acquisitions-managing-hr-issues.html
 http://irc.queensu.ca/gallery/1/cis-mergers-and-acquisitions.pdf
 http://www.mercer.com/summary.htm?idContent=1351290
 http://www.indianmba.com/Faculty_Column/FC1135/fc1135.html
 http://www.scribd.com/doc/33783230/Hr-Practice-in-Bank-of-Baroda
 http://www.manda-institute.org/en/publications+mergers+acquisitions+m&a.php
 https://api.ning.com/files/xXf*NCNsEbsYwrI6i1*hbR3H5-dFfYInY-
kbbUhpFM4GOBjotakQfovoV3Jht0ljn-p1NYwDFUXZ27Durf3YHOs-
D39JePeS/MergersAcqusitionsFINAL34082.pdf
 http://www.trainingbydesign.com/HR_%20Merger.htm
 http://www.citehr.com/39301-hrd-practices-indian-banking-sector.html
 http://www.chugh.com/IndiaPracticearea.aspx
 http://www.livemint.com/2010/08/22230828/The-changing-face-of-ICICI-Ban.html

The Insights were sought from the retired GM of SBI, Mr Shrivastava, who is actively involved with
structuring HR frameworks for various banks and also features in the board of directors of some of
the major PSU banks in the country.