Question & Answer: Imagine that one firm that buys another firm. What issues might arise as they attempt to merge their…

Imagine that one firm that buys another firm. What issues might arise as they attempt to merge their respective performance management systems? What might be the risks for the combined firm? How could the firm mitigate these risks?

Expert Answer

Issues that might arise

The merger of the performance management system would lead to stress on the employee, which is due to differences in the performance assessment policies in the organizations, uncertainty in the environment, cultural differences, differences in the organizational structure and changes in managerial styles. The organizational culture plays an integral role during a merger or acquisition since it drives the organizational structure, the managerial styles and the alignment of performance assessment policies with that of the organization. There is a cultural shock that is introduced in the organization where the employees must leave behind their existing culture, values and beliefs and accept and entirely new culture. It is much believed that dissimilar cultures produce a feeling of hostility and discomfort which can lower the commitment and cooperation on the part of employees. This may turn out to be detrimental for the organization. The uncertainty during the merger/acquisition phase can divert the focus of the employees from productive work to issues such as:

  • Job security
  • Changes in designation
  • Career path
  • Working in new departments
  • Fear of working with new teams

This above fears are justifiable since mergers and acquisitions result in duplication of department and there may be a need to downsize the employee force to make things work. Also, new teams need to be formed to align the work structure with the new organization structure. The M&A activity may also lead to changes in the defined career paths and future opportunities in the company.

The employees do not like the stress and may even reject the new performance management system since they might see a negative change in their compensation structure. Employee expectation further cause problems in the acquisition process since the employees get demotivated by the pay differential.

The biggest issues between the PMS can be of: Individual development plan and the Performance Appraisals

Individual development plan because M&A causes shift in career plans and growth of the employees of both the organizations. A new individual development plan may be resisted by the employees who were looking forward to better positions and opportunities in the company. A movement out of the current team would further disappoint the employees.

Performance plan and appraisals are very sensitive to an employee and it is greatly associated with his/her performance in the organization. Changes in the performance appraisal system will affect the employees. His performance plan may be affected with sudden change in the organizational structural leaving him highly discontent.

Risks for combined firms

  • Loss of Talent
  • High difference in Cultural and Social values leaving the employees and the management disappointed and demotivated (Biggest risk)
  • Poor managed integration of performance metrics not clearing defining the line between different grades of employees
  • Unclear alignment of the HR and performance policies with the organizational culture
  • The M&A activity would result in clash of egos between the upper/senior management professionals of the company due to division of their powers or differences in cultures
  • Apart from employees, the shareholders of the acquiring firm are negatively affected discouraging them from investing in the company

Setting up good organization culture and human resources practices for the benefit of the employees is the biggest challenge that the organizations can come across.

Risk Mitigation Plan

Per me, the organizations should have a phased approach to merge the performance management systems which should involve constant communication with the employees and the management.

  • First, the expectations of the employee performance should be set up where the feedback from the employees should be taken and an effort should be made to make them understand how their actual performance will be measured and their new career path will be defined. The work plan document should provide the employee with full information on how their success would contribute to the organization’s success.
  • The organization should try to evaluate the performance of its employees even during during the M&A phase and their progress should be monitored and documented throughout the process. This will help the employees regain confidence on the organization.
  • Employee development plans should be communicated to the employees and how this would affect their growth curve should be imparted to them. Supervisor should be in constant touch with the employees and help them overcome their weaknesses, enhance their performance or develop new skills and experience for their future assignments and transitions.
  • A proper Plan-Do-Review-Revise Performance management system should be built in alignment with the organization’s objective so that the employees are satisfied with transition where they would believe that the company is not only taking care of their aspirations and development but also has a plan for implementing the action.
  • SMART objectives should be set up as a part of the Performance management systems and the same should be communicated to the employees. (SMART – Specific, Measurable, Achievable, Realistic, time bound). These objectives should be continuously monitored by the supervisors such that they are aligned with the company objectives.


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