According to a Mercer study, wise companies use incentives to retain staff during M&A operations. Here's why.
The indicators are definitive: transactions related to mergers and acquisitions are rising for all markets and activity sectors, notably in Europe. Faced with this accelerating growth, employees sometimes seem to form the weak link in these transactions, whereas they are in fact a crucial asset. A suitable policy of retaining talented staff can be key to the success of the operations.
The Mercer Study (June 2017) provides several lessons for companies concerned about a policy of retaining staff during an acquisition:
- A policy of retaining staff is not limited to managers and directors. It must concern all profiles in a company, notably employees with critical skills. In general, it is the quality of the profiles rather than the number of employees concerned that should take precedence.
The relationship is inversely proportional between the cost of such a policy (overall allocated budget) and the value of the operation it relates to.
Personalised financial incentives, which are essential operational tools, vary depending on the timescale involved. The most common forms are bonuses or one-off monetary payments in the short-term and allocation of shares in the long-term.
Retention policies can vary in form, depending on the location of the companies acquired. Thus, in the United States the amounts (wages, benefits, etc.) in play will be the highest. In Japan, the incentive to remain is almost mandatory. Indeed, it enables compensation for the almost systematic lack of knowledge investors have of the special features of the local market.
Finally, a warning: in the long-term, financial incentives alone will not ensure the success of a policy of retaining talented staff during an M&A operation. Development prospects are also taken into account by employees in this type of transition, as is confirmed in a recent study by Willis Towers Watson.
3 smart fringe benefits
A pension scheme, hospitalisation insurance and devices remain fixed items within the remuneration package. A creative approach means that the cost of these is manageable.
Company cars, group insurance, various types of cheques, an internet connection at home, working part-time or even childcare through the employer – each of these is an example of fringe benefits. Although the social and tax regulations for each benefit type are different, they do have one common characteristic: employees love them. Let's look at three of the most popular benefits in more detail:
Devices – the ideal fringe benefit?
Hip, handy and sought after: smartphones, laptops or tablets have everything needed to be a dream fringe benefit. Employees are delighted and they are a benefit which employers can perfectly justify. Communication plays a key role in any company. However, the challenge is ensuring that costs are kept at a reasonable level. How should you approach this?
- Set your employees a maximum amount for their mobile phone usage. Whoever exceeds the limit, pays the difference. A third of companies offering staff a mobile phone employ such an arrangement. On average, the employer ends up paying €25 to €50 per month, but for more senior roles, this amount will often be significantly higher.
Mobile phone operators have also developed special packages in order to process the administration relating to split-bill arrangements. For any amounts below the limit, they send the bill directly to the employer. The employee is billed directly for any extra usage.
- Ask your employee to pay back a fixed amount each month by way of a salary deduction. This way, you as an employer can recover a part of the costs and also restrict the taxable benefit as far as your employee is concerned.
The "normal" taxable benefit amounts to €12.50 per month for a mobile phone or a smartphone, €15 per month for a laptop or tablet and €5 per month for mobile internet or broadband internet at the employee's home. If the employee completely repays that benefit, then they are no longer liable for taxes on the personal privilege resulting from the benefit.
Saving for later – the supplementary pension scheme
According to a survey by SD Worx, 81% of Belgian employers are contributing to a supplementary pension for their employees, who are increasingly coming to greatly value this benefit. This is not only due to lenient tax treatment, but also due to the growing focus on the pension issue. If you, as an employer, also wish to do this, then you have a number of different possibilities.
- Group insurance or pension scheme
With a collective pension scheme, you build up, with fixed, monthly payments, supplementary pension capital for your employees. Sector or company CLAs increasingly require such a scheme to be set up, with or without being "social" in nature. Despite this, premiums for non-statutory pension accrual usually remain relatively modest.
If you want to do something extra for your staff's pensions, then a supplementary pension scheme also offers fiscally attractive opportunities for paying out a classic bonus or end-of-year premium. Tax and social deductions on pension payments are minimal, whereas around half of a normal bonus will disappear.
- Personal pension scheme benefits
You also have the possibility of further optimising the pension scheme of your most valuable employees – think of managers or self-employed company executives for instance – on an individual basis. This can be done thorough so-called personal pension scheme benefits. Very strict rules apply to this, including respecting the 80% rule. This states that the employer contribution for this non-statutory pension, together with the statutory pension, may be no higher than 80% of the employee's last normal annual gross salary.
Furthermore, for your wage-earning employees, a ceiling of €2,340 (the amount for 2016) is also in force, per employee and per year. Finally, take account of the fact that personal pension scheme benefits cannot be created in the 36 months preceding (early) retirement.
Hospitalisation insurance: affordable care
Nowadays, hospitalisation insurance is almost indispensable. Employees also especially value this particular benefit. Three points to consider:
- As an employer you are obliged to inform your employees that they are entitled to personally continue the collective policy if they leave the company. With individual continuation in later life, however, the premium can be very expensive. In order to avoid the premium for a future transition already being too high, your employees can take out a waiting policy in order to pre-finance their future premium. You are also obliged to inform affiliates of this. With such a waiting policy, upon later transition, your employees pay a premium based on their initial affiliation age.
- In agreement with your insurer, you confirm whether your employees are or are not obliged to affiliate themselves to the collective hospitalisation scheme. Ensure that you establish hospitalisation insurance as a voluntary fringe benefit that your employees may replace with another optional benefit of their choosing. If insufficient employees are affiliated to the collective policy, the premium for each employee may increase.
- The premium which you as an employer pay for a collective hospitalisation insurance scheme is a benefit which is exempt from tax. For you as an employer, however, these costs are not tax deductible.
Performance-related salary bonuses increasingly popular
CLA 90 performance-related bonus schemes are on the increase. Last year, 15% of administrative workers and 12% of manual workers received this type of bonus. As an employer, you could effectively combine such a bonus scheme with just about any objective and clearly measurable goal which you would like to see achieved within your company.
Examples are profit increase, cost reduction, a reduction in average delivery time, reducing the number of accidents at work or sick days, etc.
It is important to note that collective goals must be the focus here and that all employees (or a clearly defined group) must be involved in the scheme.
The advantages of a bonus scheme
Paying out a little extra through such a bonus scheme has some important advantages. Let's cover the main ones:
- If the maximum amount is respected – €3,219 per employee in 2016 – at the social level, the paid-out bonus is only subject to the 33% special employer contribution and a 13.07% employee deduction. The tax burden is also minimal.
For example: An "ordinary" bonus that generates €1,000 net for the employee, costs the employer €2,695.90. For a performance-related bonus, the cost falls to €1,503.80.
- For the employer, the bonus is fully tax-deductible as an operating cost.
- The salary bonus does not count in the calculation of holiday pay and the end of year premium.
- A performance bonus can never become an acquired right. It is given once and you are never obliged to repeat it the following year.
- Performance-related salary bonuses fall outside the government's ruling. This way, it's perfectly legal for you to provide your employees with a little extra.
A flexible salary as an alternative
A new trend which has grown in response to economy measures is "flexible rewards". This means that employees can adapt their remuneration package to suit their personal needs.
Due to the crisis and the current tendency to freeze salaries, increases are often difficult to implement. However, through making salaries more flexible you can improve employee satisfaction. The starting point of a flexible reward scheme is simple: a summary is made of each employee's total salary package and the budget which corresponds to this. On the basis of this, certain salary components can be exchanged for other benefits from a "shop".
So far, this idea has seen little application in the market, mainly because it is difficult to organise in a fully statutory way. Human Resources company SD Worx has succeeded in creating a legally supported "cafeteria scheme", which offers employees the possibility of choosing independently from a number of fringe benefits.
"Fixed salary flexibility is not always simple, since pay scales are often linked to sector or company CLAs," explains SD Worx's Kathelijne Verboomen. "But variable bonuses and fringe benefits normally lend themselves to it very well. Within a flexible reward system, the budget for a salary bonus can, for instance, be allocated to an extra car or car wash budget, non-statutory holiday days, a laptop, tablet or smartphone, an electric bike, a babysitting service for sick children, etc. Non-statutory holiday days are particularly fashionable at the moment.
On the other hand, we are also seeing that employees who don't wish to have a car, prefer to reduce their car budget in return for other benefits, or cash. We've noticed this following the replacement of a company car or a promotion. Employees who are promoted – and therefore enter into a higher car category – but are still satisfied with the car they have can use the extra budget in another way."
Belgian companies are optimistic
The climate at the start of this year is favourable for companies in Belgium, a study reports. The recruitment indicators are positive and even long-term optimism is on the rise.
Companies are optimistic about 2017 according to the 26th edition of the quarterly survey by SD Worx on employment, with 36% of SMEs expecting to acquire new employees during the current year. By way of comparison, in 2016, only 28.3% had the same expectations. In the space of a year, long-term optimism has increased by 7.5%.
"A third of the companies intend on hiring new employees in the first quarter."
Remarkably, SMEs are the most optimistic: 11% are planning extra hires compared to last year. And micro-enterprises are also enthusiastic: 30.5% of managers believe that their workforce will grow by 2018 (last year it was just 21%). In the next category up (up to 20 employees), 45% are considering expanding their workforce (36.5% in 2016). The news is symbolic since SMEs represent 99.8% of companies in Europe. In 2014, they employed 90 million workers, which is 67% of the total employment in the EU.
Thierry Van Eesbeeck, a strategic adviser at SD Worx, explains that large companies seem to be the least affected by this renewed optimism regarding employment, though they can benefit from it:
"The expectations of large companies regarding the job market have seen no significant changes in comparison with last year." However, he emphasises that the global results are encouraging: "The outlook on employment remains excellent. The figures for 2017 rank among the top three that have ever been recorded."
(Source: SD Worx)
(Source : SD Worx)
The study by SD Worx highlights a specifically Belgian phenomenon, since this optimism is not necessarily shared by the rest of Europe. The recent 27th edition of the barometer of SME's access to finance and credit in France shows a completely different picture. Concerns about the economy continue to plague managers in their perspectives and recruitment plans. This phenomenon is strengthened on a European level by the Greek crisis and other debt crises in various European countries.