Organizational mergers and acquisitions have been numerous during the last decade, and the trend shows little evidence of easing. Such combinations often are driven by the attraction of economies of scale and increased market share. The joined companies usually want to combine their benefit plans to reduce administrative costs and to provide the same benefits for all the employees. But often unnoticed in the atmosphere surrounding the merger or takeover are the difficulties and potential costs of merging benefits programs.
The difficulties are seen when Federal Mogul acquired Fel-Pro. Although both firms are auto parts manufacturers, they are very different in corporate culture. Federal Mogul, with 13,000 employees, has numerous unionized workers represented by the United Auto Workers and United Steel Workers. However, Fel-Pro, with 2,700 employees, had no unionized workers. The difference in culture and employee relations resulted in each firm having significantly different benefit plans.
Fel-Pro, as a family-owned firm based in Chicago, had established a broad range of highly employee-oriented benefits. For example, Fel-Pro had a companyowned summer camp for employees’ children and funded college scholarships now worth $3,500 per child in grants for employees’ children. As a result, Fel-Pro had employee loyalty, low employee turnover, and a highly team-oriented environment.
Federal Mogul’s culture and benefits program did not include many of the Fel-Pro benefits. Instead, having a union-dominated environment, the benefits plan for Federal-Mogul employees had been gained through years of union-management negotiation and bargaining. Therefore, its benefits program contained few of the family-friendly and flexible benefits offered by Fel-Pro.
The acquisition of Fel-Pro made strategic sense for Federal Mogul. But executives at Federal Mogul had to confront two worries: (a) that Federal Mogul employees might want to add the Fel-Pro benefits; and (b) that the Fel-Pro employees would react very negatively if some benefits were discontinued, thus affecting productivity and morale.
To address these issues, Richard Snell, chairman of Federal Mogul, had to reassure Fel-Pro employees that the combined companies would continue to provide good benefits. But he stated that the scholarships would continue for five years and might be discontinued after that. Also, it was decided that the summer camp would operate for two more years. But the Fel-Pro employees have recognized that the organizational culture and job security, as special benefits they had, are likely to be diminished as a result of the acquisition. There is real concern that the benefits changes may diminish the success of the acquired firm.33
- Why should evaluating benefits programs be a crucial part of any planning for mergers and acquisitions?
- What could be done to meld the different benefits plans in ways that balance both employer costs and employee morale considerations?
The Correct Answer and Explanation is :
1. Why should evaluating benefits programs be a crucial part of any planning for mergers and acquisitions?
Evaluating benefits programs is crucial in mergers and acquisitions (M&A) because employee benefits are a major part of an organization’s overall culture and employee satisfaction. These programs are a key component of employee retention and morale, and can significantly affect productivity and loyalty, which are critical during a transition. When two organizations merge, their employees are often concerned about how their benefits—such as health insurance, retirement plans, paid time off, and family-friendly policies—will change. If the benefits are not carefully assessed and harmonized, the resulting changes can create confusion, resentment, and distrust among the workforce, which can lead to increased turnover, decreased productivity, and even legal issues.
In the case of Federal Mogul acquiring Fel-Pro, both companies had vastly different benefit programs, reflective of their differing cultures. If these programs were not properly aligned, there could be negative repercussions on employee engagement and morale. For example, Fel-Pro employees were accustomed to generous, family-oriented benefits like scholarships and summer camps, which Federal Mogul did not offer. These discrepancies could lead to dissatisfaction, especially if Federal Mogul employees felt entitled to such benefits or if Fel-Pro employees felt their benefits were devalued.
Therefore, evaluating benefits during M&A is necessary not only to streamline costs and integrate policies but also to ensure that the transition is smooth for employees, reducing resistance and promoting retention.
2. What could be done to meld the different benefits plans in ways that balance both employer costs and employee morale considerations?
Melding different benefits plans requires a careful balance between maintaining the benefits that employees value and managing costs for the employer. Here are some strategies that could be applied:
- Communication and Transparency: It is vital for both companies to clearly communicate any changes to benefits, including which benefits will remain, which will change, and why those decisions are being made. Transparency about the reasons for change helps build trust among employees.
- Grandfathering Existing Benefits: Federal Mogul could have considered “grandfathering” Fel-Pro’s key benefits, allowing current Fel-Pro employees to continue receiving the more generous benefits, such as scholarships and the summer camp, while introducing a more uniform benefits package for new hires. This approach preserves loyalty and morale while gradually introducing cost-saving measures.
- Phased Transition: A phased approach could ease the transition. For instance, the company could maintain the summer camp and scholarship program for a few more years, allowing Fel-Pro employees to adjust to the change while ensuring that Federal Mogul employees can see how the merged benefits will work in the long term.
- Integration of Best Practices: Instead of eliminating Fel-Pro’s benefits entirely, Federal Mogul could have integrated some of the best features, such as a more family-friendly work environment or flexible work schedules, into its own benefits plan. This would show employees that their needs are being addressed while also balancing cost.
- Focus on Employee Engagement: Providing employees with a say in the new benefits package or forming a joint task force to evaluate employee preferences and needs can create buy-in from both sides, making employees feel valued and heard during the transition.
Ultimately, the goal is to create a unified benefits package that supports both the financial goals of the company and the well-being of employees, ensuring a smoother integration and higher employee morale.