Case study—Paid Time Off (PTO) Policies
Company A and Company B have merged. However, HR has discovered that they both have different Paid Time Off (PTO) policies. Company A’s PTO is currently in employees are given 30 days of paid time off each year, which accumulates at the rate of 2.5 days a month. Vacation and sick leave are rolled into one paid leave and any absence whether scheduled, such as vacation or unscheduled, such as sick leave, are taken from the accumulated leave they have earned.
Company B has the more traditional PTO, in which the employees are given 12 days of vacation, 10 days of sick leave and 10 holidays. They are also not open or in operation during these holidays. They accumulate vacation a one day per month. Sick leave has unlimited accumulation however, this would not be paid when the employee is terminated from employment (vacation would be paid). Now that we have gone over the different PTO policies for Company A and Company B, HR is looking to possibly combine, modify or create a new Paid Time Off benefits package. The ultimate goals is to make employees from both organizations happy. As an organization that is in the process of merging, what can be done to successfully merge them into one policy?
As you can see from the example above, most companies that merge almost always have different PTO compensation benefits. When weighing the options of what to do with the changes or what will remain the same, you need to consider the fact that employees need to feel like they did not come out losers in the process. Successful solutions to the PTO policy is crucial for employee retention. Remember, if you are not able to keep a good percentage of your clients and employees, it would not be considered a successful merger. The pay and additional perks is often not really important to the satisfaction of employees, however, you should never ignore these. If you do not pay your employees well, or if they feel like they are not being paid well, you will most likely see them depart to better paying jobs (Sinkin & Frederiksen, 2011).
An employee would obviously like to have the best PTO compensation possible. According to Cascio (2013), you need to look at the following when considering compensation:
I believe that HR needs to make sure these factors are taken care of as it all ties in with employee benefits and compensation packages. You have to make sure that all pay is fair when merging companies. If an employee finds out that another employee acquired from the merge is getting paid more, they will lose motivation in the workplace and possibly leave when the opportunity arises.
- Internal Equity – this is making sure that they pay rates are fair in terms of worth of individual jobs to your business.
- External Equity – Are you paying fair wages in relative to the market and competitive set?
- Individual Equity – Are your compensation wages fair when comparing one employee who does the same job as the other employee?
Looking at all this and then coming up with a comparable PTO policy could be a very difficult task for HR. You might get employees from Company A that think that their PTO policy is great and also employees from Company B that think their PTO policy is great and does not need to be changed. HR will need to look at the total number of employees, the work conducted, and also if they already have future approved pending time off.
We now that Company A and Company B have two different PTO policies. A big difference is especially apparent to when the employees receives the actual pay. Putting it in simplest terms, Company A employees were paid benefits on a yearly basis and Company B were paid benefits on a monthly basis. HR will need to calculate and weigh pros and cons of current PTO benefits and find a middle ground for the merge. The goal is to make sure employees are happy and to be able to fully execute and maximize their productivity. Although Company B used to give them time off on a monthly basis, I do believe that it would be in the best interest for the company to distribute the PTO when levels of work are slow to not interrupt operations during busy times.
Sometimes, HR cannot come up with a solution and has to start from scratch. This often is an issue and they have no choice but to go in this direction. Sometimes, the compensation policies of the merging organizations are completely different that the best thing to do in this situation is to throw out both current policies and start new. More often than not, two very similar organizations come together that have extremely different compensations policies. A recommendation would be to get a team of compensation personal to work closely with the HR department to help with the process. What these people will do is take a full inventory of both Company A and Company B compensation policies (including management) and will also look at performance evaluations and past/current incentives. If they find a big discrepancy in the pay scale, the best option will be to start from scratch (Wells, 2014).
I do believe that this is an option that HR should consider to have a successful merge. If I were an employee, I would be more satisfied and be more accepting of a new Paid Time Off policy rather than having to accept the other organizations policy. It would be fair to both organizations and all employees involved. Let’s say you decide to keep the compensation from Company A or the compensation from Company B. I feel like it would be very difficult to explain to each party why their compensation policy was completely eliminated and why HR decided to keep the other. If I were the employee from the side of the company where my current benefits were eliminated, I would feel very insecure in my current position, I would feel like they are somehow in favor the employees from the other company. I would also be worried about my job security. Would they pick someone from the merging company to take over my current position? Employees think a lot and want to make sure every possible questions is answered during the merge process.
Now that we have established what should be done, it is extremely important for HR to communicate these changes and be completely honest and straightforward. This will make sure rumors are not started (which is often the case) (Wells, 2004). HR must and should sync and harmonize both organizations as quickly as possible. This will end up being important to both the employees and the clients. An organization must understand the people involved in the integration before the actual merge to make sure that they will keep on focusing on the day to day operations of the business and daily tasks rather than this internal matter (Lynch & Perry, 2002). Some obstacles that HR will often face is the information given is very limited due to restrictions. Employees end up not feeling secure in their job and can affect their morale and overall performance. This will cause the business to feel the effect of the loss of productivity. HR should hold meetings and let their employees’ voice be heard by having an open discussion (questions and answers). This could help the employee feel more at ease during the merge, especially about the PTO policies. As a manager, if you do not know the answer to the question asked by the employee, give the employee an estimated time of when you can come up with the answer (Wells, 2004). You should make it a goal to not leave any questions unanswered.
Once you have the complete details of the new benefits package, I would recommend sitting down with the employee on an individual basis and let them know what has changed instead of holding one giant meeting. It is definitely more time consuming to conduct one on one meetings, however, the employee will understand the compensation package more clearly and the will feel more valued since HR took the time to explain the changes on an individual basis.
Overall, the merging of two organizations is very difficult and a lot of people do not realize that most organizations want to do what is in the best interest for the organization and the employees. Make sure you analyze your new compensation package in detail and be ready to answer questions from every employee about why the old compensation package has been eliminated. If HR is prepared and did their research in advance, they should have no problem answering questions comfortably for an employee.
As a current employee of an organization that was bought by another, I know how uneasy it feels not knowing what is happening and what the future holds. Seeing people come in and out of important secret meetings while management keep telling us nothing is happening just made employees angry. It also kept us guessing and spreading rumors about the whole situation. Honestly is extremely important, especially if you are looking to retain some of your employee’s.
Cascio, W. (2012). Managing Human Resources, 9th Edition. Retrieved from http://digitalbookshelf.argosy.edu/books/0077649117/id/ch11_fn5
Lynch, L. J., & Perry, S. E. (2002). An Examination Of Pre-merger Executive
Compensation Structure in Merging Firms. Journal Of Managerial Issues, 14(3),
279. Retrieved from http://web.b.ebscohost.com.libproxy.edmc.edu/ehost/detail/detail?sid=400c24a1-20b6-4057-bacc-073a2dfe35ed%40sessionmgr113&vid=0&hid=107&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#AN=7598662&db=bth
Sinkin & Frederiksen. (2011). Bridging Compensation Gaps In a Merger. Journal of Accountancy. Retrieved from http://www.journalofaccountancy.com/Issues/2012/jan/20114438.html
Wells, S. J. (2004). Merging Compensation Strategies. HR Magazine, 49(5), 66-78.
Retrieved from http://web.b.ebscohost.com.libproxy.edmc.edu/ehost/detail/