Minimizing Mutiny

BOSTON (06/05/2000) - IT managers tend to focus on technology issues when their companies are undergoing mergers, but workforce management is the real challenge. Whether you want to keep individual staff members permanently or only through the transition, everyone has to be motivated to pull off the integration.

"We get people excited about their new opportunities at Cisco," says Tim Merrifield, a senior IT manager in San Jose who heads many Cisco Systems Inc. integration projects. "They have an incentive to execute the transition as quickly as possible so they can get to those opportunities."

Retention is easy for Cisco, which offers the prospect of high growth, stock options and ever-expanding possibilities.

New employees want to be part of Cisco, so extra incentives are generally not necessary.

For firms that don't enjoy Cisco's position, retention bonuses can be very effective.

"Companies should typically offer a 'stay incentive' - a bonus employees get if they stay through the transition period," says Gregory Smith, director of the mergers and consolidations practice at Compass America, an IT consultancy in Reston, Virginia. "This will keep people focused on the end result."

So how do you calculate such incentives? Experts say formulaic approaches - such as a month's pay for every year of service - don't work. "You could end up keeping the old legacy fogies and losing all the young, new-economy people," says David Ulis, global delivery executive of mergers and acquisitions for DMR Consulting in Edison, New Jersey.

Bonuses should be based on the importance of individual employees. "We've seen stay bonuses amounting to 25 percent to 50 percent of the employee's base salary," says Eileen Birge, research vice president at The Concours Group, an IT consultancy in Kingwood, Texas.

Don't condition such incentives on layoffs. In one merger, potential bonus money would accumulate for each month employees stayed through the pre- and postmerger transition period, which was expected to span several years. But workers could cash in only if they were laid off at the end of that period.

"Some big bonuses piled up, and a lot of people wanted to get laid off in order to collect them," says the IT manager in charge of the integration project for a large company that recently went through a merger. "They could get laid off a year after the transition period ended and get nothing."

It's also tricky to determine the transition period to tie to the retention packages. "If you offer six-month packages and the transition ends up taking 12 months, you find yourself in an extortion situation with your employees," Birge says. "If key people leave, you may have to replace them with expensive hourly contractors."

Before the merger is announced, analyze both firms' IT staffs and decide who the key people are and which jobs need to be redefined. "Figure out your ratio of employees to contractors on a full-time-equivalent basis," Ulis says. If you use a lot of contractors, you can announce that most of the reductions will come from the contractor ranks. This should help keep employees from jumping ship.

Another important point is jobs shouldn't automatically go to the employees of the acquiring firm. "We look for the best talent, and the best candidate might be in the target company," says Austin Adams, executive vice president of First Union, a Charlotte, North Carolina, bank that has grown through a string of acquisitions.

When choosing key members of the transition team, identify people who know a lot about the target company's infrastructure. "These people know about all the IT problems that have been swept under the carpet," Merrifield says. "If they leave, I'm left holding the bag on an environment I know nothing about."

Have retention packages and job offers ready to hand employees the day the merger is announced to the entire company. "It is critical that the offers be communicated in the first couple of days," Birge says. "The really good employees are the first to leave." Follow up with one-on-one meetings during the next few days.

While the first days after the announcement are critical, they're just the beginning.

You must maintain clear, constant communication throughout the transition to minimize rumors and set the right expectations.

If layoffs are required, do them all at once and provide job placement help.

"The way you deal with the people you lay off will affect the way people you want to retain view the company," says Karin Maday, a managing director in KPMG Consulting's high-tech practice in Mountain View, California.

Employees form attitudes about the acquiring firm as soon as the deal is announced, and these attitudes are then tough to change.

"On the first day, listen to them talk about their technology and make them feel good about what they have accomplished," Adams says. Involve key people so they feel they have an impact on the design of the combined entity.

Finally, realize how much time you'll spend dealing with people issues during acquisitions. "We recommend that companies budget 40 percent of the executive workload during mergers and acquisitions on managing workforce issues," says Michael Gerrard, a Gartner Group research director in Laguna Beach, California.

"As scarce and valuable as IT people are, you really have to invest the time."

Breidenbach is a freelance technology journalist and consultant. She can be reached at sbreidenbach@ usa.net.

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