Editor:
Susan F. Sandler
AUGUST 2005
VOLUME 82 NO. 8
Inside this month
COVER STORY: HR’s Growing Role
in M&A Due Diligence
Now that HR is being asked to help prepare
for more mergers, learn how you can add
value to this critical corporate function.
3 RETENTION: Why the Turnover
Threat is Real—and What to Do
About It
Think the staffing shortage is just a rumor?
Think again—and understand where the
gaps are occurring so you can start
addressing the issue.
6 COMMUNICATIONS: Five Tips for
Better HR Department Branding
HR has its own brand—just like any other
department. What’s yours, and how can
you change it to attract and better serve
employees?
7 HR DEPARTMENT: SHRM Predicts
the Human Capital Metrics of the
Future
What will HR be measuring tomorrow?
Find out what a panel assembled by SHRM
thinks.
11 TRAINING: How to Develop the
Best Training Initiatives
These simple rules can help you make the
most of training dollars—and time—to
achieve maximum results.
DEPARTMENTS
2 Legal Insights
8 HRfocus News Briefs
12 Compensation & Benefits News
15 HRfocus Calendar
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Sr. Managing Editor:
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Managing Editor:
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Executive Director:
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S T R AT E G I C H R
HR’s Growing
Role in M&A
Due Diligence
I f you’ve been asked recently to help your organization prepare
for a merger or acquisition, you’re in good company: More HR
professionals are being asked to join the team that previews
mergers and explores potential merger partners.
This is very good news, since culture clashes and people issues
often damn mergers to failure. Getting HR expertise early in the
game should help more mergers to succeed. In fact, a 2004
research study by Towers Perrin showed just that. HR Rises to the
Challenge: Unlocking the Value of M&A reported that when HR
is involved early in the merger process, the odds increase that the
merger will succeed.
Understanding M&A and the HR factors that you may be called
upon to investigate are important so that HR can play its role in
merger success. How to do this better was discussed by Paul
Falcone, director of HR, Platinum Equity Advisors (pfalcone@
platinumequity.com; 310-282-9217), at the recent Society for
Human Resource Management conference in San Diego, in the
session, “Forensic HR: How HR M&A Due Diligence Can
Provide Strategic Insights Into Your Department’s Operational
Performance.”
THE M&A SCENE
M&A is one of the hottest HR areas right now, Falcone says, right
up there with international HR and business process outsourcing.
And M&A is hot in the business world, in general. Reasons for
this include:
Global trends. Corporate America has cash now that the
economy has improved, which means there may be more global
mergers ahead. Also, world trade is growing, free trade agree-
continued on page 13
 TRAINING (cont’d)

for the workforce. As part of the pro-
cess, Matens suggests asking:
Are training and development
aligned with the company’s mission
and goals?
Does training and development
satisfy the needs of management and
the employees?
Has a distinction been made be-
tween the “need to know” and what’s
“nice to know”? Curricula may in-
clude many of the following areas:
changes in the company, job-specific
training, training required by law,
teamwork training, quality training,
customer service, leadership, and
communication.
When it comes to the latter, Matens
recommends that companies focus
on developing listening skills in par-
ticular. Without good communica-
tion, he noted that organizations can
suffer from ineffective work habits,
distrust, unclear goals and directions,
bad decisionmaking, unsafe situa-
tions, poor morale, and a waste of
time and money. Better communica-
tion will not only help prevent these
problems, but will enhance all of your
other training initiatives.
GETTING GOOD TRAINERS
Effective trainers are subject matter
experts, have strong interpersonal
skills, and have completed a “train
the trainer” course, Matens said. They
must also be prepared to train an adult
audience.
Adult learners seek education in
three areas, he explained:
Goal-oriented: Education is to
accomplish a specific goal.
Activity-oriented: In pursuit of a
particular activity.
Learner-oriented: Some want to
learn for the sake of knowledge and to
become more educated.
Failing to understand adult learn-
ing styles can be a problem with train-
ers. Other challenges include failure
to know the subject matter, poor pre-
sentation skills, lack of understand-
ing of group/team dynamics, and fail-
ure to understand what motivates the
employees to learn.
FOLLOW UP
As with all HR initiatives, the evalu-
ation, follow-up, and adjustment that
comes after you initiate your training
program are crucial to its success.
Steps in course evaluation that
Matens recommends include assess-
ing the effectiveness of:
The instructor.
Relevance/quality of material.
Time of day of class.
Length of the session.
Facilities.
Logistics.
Most/least valuable information.
Suggested improvements.

P AY
S T R AT E G I C H R O( cL o
ments make it easier to transport
goods, and mergers can help with
entering emerging markets, cutting
costs, and gaining competitive ad-
vantages.
Economics. Publicly traded com-
panies are under pressure to raise
earnings. If they can’t do it from in-
side the company, they may seek to
acquire companies to boost their earn-
ings.
Technology. The Internet and
technology advancements have
brought about the offshoring of white
collar jobs and made merging with
competitors easier.
U.S. demographic shifts. A la-
bor shortage, courtesy of the “baby
bust” generation, means there will be
an enormous lack of qualified work-
ers. M&A activity can be a fast and
efficient way to build a workforce.
Falcone is at the forefront of these
trends since he works for a private
equity M&A firm; formerly, he was
L n(tc’odn ft r’ o
dm) page 1)
head of HR for Paramount Studios. organizations undergo when they de-
He chose to move to his current com- cide to merge:
pany so he could expand his M&A Stage 1: Pre-deal. Finding com-
knowledge. patible business ventures and part-
ners.
HOW MERGERS HAPPEN Stage 2: Due diligence. Ensuring
Falcone described what he called the the deal is sound, and setting the initial
M&A life cycle, or the stages that integration strategy. This can take any-
Future issues:
The Custom Approach to Retirement Savings Advice:
How It Can Help Your Employees to Save
How Are Consumer-Driven Health Plans Working So Far?
Phased Retirement: A Way to Solve Staffing Shortages
and Maintain Your Company’s Intellectual Capital
Strategies for Dealing With the Most Difficult People
You Encounter at Work
A Union Organization Trend You’ll Want to Watch for This Year
Your Employee Handbook: Time Bomb or Savior?
How to Recognize the Difference
HRFOCUS / AUGUST 2005 13
 S T R AT E G I C H R ( c o n t ’ d )
Guidelines for HR Due Diligence
HR professionals should explore several areas during due
diligence, according to Paul Falcone, director of HR, Platinum
Equity Advisors, in his session, “Forensic HR: How HR M&A
Due Diligence Can Provide Strategic Insights Into Your
Department’s Operational Performance,” at the SHRM con-
ference in San Diego. These include:
1. General organizational structure:
Organization chart for the entire target company.
Number/type of employees by department.
Directors, officers, committees, and their duties.
Data on key employees, including deferred comp, incentive
bonuses, etc.
Balance and alignment of the organization.
2. Documents for review:
Fixed-term employment contracts in the U.S., and severance
agreements.
Affirmative action plans.
Collective bargaining agreements, employee handbooks, and
policy and procedure manuals.
Employee bulletins for the last two years.
Training programs for the last two years.
Consultants and other outside services used.
3. Management and office personnel:
Rating and evaluation of all staff with managerial responsibility.
Lines of succession.
Methods and rates of compensation.
Key employee insurance.
Planned retirements.
Physical arrangement and adequacy of offices.
4. Non-exempt factory labor:
Union contract status.
Present labor climate and history of past difficulties.
Methods of hiring and discharge.
Job classification and rates.
Working conditions.
Areas of “micro” or practical focus by HR:
1. Detect possible exposure to the acquirer under
employment law:
Post acquisition employment litigation. Discrimina-
tion, harassment, unsafe work environments, denial of benefits,
breach of employment contract, wage and hour, and wrongful
termination are all key areas. Since the average U.S. employment
litigation settlement is $300,000, you definitely want to try to head
off problems with such matters.
OSHA. Ergonomics, safety records, workers’ comp acci-
dent rates, “sweat shop” conditions in overseas manufacturing
plans, and even OSHA’s extension of authority to the homes of
telecommuters should be explored.
Wage and hour laws. Minimum wage, family and medical
leave, overtime, and exempt status.
Pension plan funding. Under-funded versus over-funded
pension plans, plan terminations, plan mergers, severance agree-
ments, and treatment of pension beneficiaries at the time of sale.
“Fully funded” plans now may trigger unanticipated liabilities in the
future due to salary escalation and the acquiring company’s changes
in actuarial assumptions.
Workforce reduction laws. To avoid lawsuits about
discrimination in layoffs, acquirors typically offer affected employ-
ees extra compensation in exchange for a release/waiver of any
14 HRFOCUS / AUGUST 2005
discrimination claims. Be aware of restrictions under the ADEA
(affecting layoffs of workers over the age of 40) and the Worker
Adjustment and Retraining Notification Act (mass layoffs or plant
closings), and how these may come into play in the potential merger.
Collective bargaining laws. If the acquired company is
unionized, then the acquirer will want assurance that the target company
is in compliance with all collective bargaining relations outlined in the
National Labor Relations Act and other applicable laws. Related issues
that can arise include: If the acquirer and target both have unions, does
the bargaining unit of the target company fold into the acquiror’s
bargaining unit, or does it remain free-standing? If the acquirer has a union
but the target does not, should the target’s employees automatically be
enrolled in the acquiring company’s collective bargaining unit?
2. Benefits:
Costs of benefits as a percentage of payroll should be
investigated, including benefits program costs for three groups:
— Active employees: full-time, part-time, expatriate, tempo-
rary contract, and union workers.
— Inactive employees: disabled, on leave, and those eligible for
other post-termination benefits.
— Retirees: pension plans, health plans, and life insurance.
Health plan review:
— Current costs of active programs for the acquired population.
— Commitments to future cost increases.
— Exposure to cost escalation due to medical inflation and
utilization trends.
— Plan compliance with regulatory requirements, such as
ERISA or Pension Benefit Guaranty Corp. filings or premiums.
Documents to review. Obtain copies of:
— Contracts with all benefits providers.
— All Form 5500 filings.
— Annuity contracts.
— Current trust statements.
— Fiduciary insurance and bonds.
— Frozen plans.
— Summary plan descriptions/plan documents.
— Vesting schedules.
3. Compensation. Consider compensation as a per-
centage of revenues.
Documents to review:
— Grades, titles, ranges, and position descriptions.
— Current salary structure and wage scale hierarchy.
— Executive compensation.
— Long-term incentive plans/stock option plans.
— Sales commission pay structures.
— Compensatory time practices.
— Overtime records.
4. Employee data (compliance agreements). This in-
cludes EEOC/OFCCP affirmative action plans, Form I-9s, and
OSHA records.
5. International considerations. If your organization
is exploring an international merger or acquisition, know that
many countries have specific requirements about termina-
tions. These could include contractual notice periods, statu-
tory or enhanced severance packages, pay-in-lieu of notices,
similar notice requirements to those under WARN in the
U.S., and acquired rights (where employees may claim a right
to a bonus or salary increase after receiving three consecutive
years’ worth of salary increases and/or seniority bonuses).
where from less than three months
(most likely) to more than a year.
Stage 3: Integration planning. De-
fining the blueprint for all aspects of the
merged entities. This usually takes place
30 to 100 days after the decision to
proceed. Types of integration:
Limited (“light touch”). The
acquirer sees the acquired company
as an addition to its portfolio, so the
target company usually retains its
management team and employees are
barely affected.
Dominant company. Two com-
peting companies become a single,
larger organization.
Mutual/best of both. “Merger of
equals,” though this is usually a euphe-
mism for a dominant firm acquisition.
Transformation to a new com-
pany. Takes mutual/best of both com-
panies to a higher level, specifically
combining leading-edge technologies
and other functional capabilities into
the new company’s practices.
Stage 4: Implementation. Execut-
ing the merger integration plan and
measuring and reporting process.
Historically, HR only becomes in-
volved at the third stage or later. Now,
HR is being invited to get involved
earlier—at the due diligence phase.
DUE DILIGENCE, DEFINED
The primary goal of due diligence,
Falcone explained, is to validate and
justify the potential merger. It includes
determining whether the acquiring com-
pany is paying the “right” price for the
target company, based on a number of
financial and business factors that are
explored. The strength of the target
company’s finances are explored, and
the acquiring company must learn about
the potential liabilities that it would
acquire along with the assets.
There are also a number of HR
factors that are included in due dili-
gence—or should be. Falcone outlined
key areas that you should incorporate, if
possible, since certain information may
not always be available in the process.
The sidebar, “Guidelines for HR Due
Diligence,” will provide a number of
topics to explore.
The many areas of exploration not
only bring HR issues to the fore in due
diligence, but provide a real opportu-
nity for the entire HR department to
become involved and demonstrate
value, Falcone said. “This is great
stuff to delegate to your staff.”
BEST PRACTICES
As with most areas of HR today, best
practices and metrics to assess the
information you are exploring will be
very helpful in making an accurate
assessment about the potential merg-
er target.
Falcone said that it’s important for
HR professionals performing M&A
work to understand these areas:
HRfocus CALENDAR
Recruiting, Interviewing, and Selecting Em-
ployees, Chicago, Aug. 8-10; San Fran-
cisco, Aug. 15-17; New York City, Sept.
19-21; Atlanta, Oct. 5-7; Washington,
D.C., Oct. 31-Nov. 2. Contact: Ameri-
can Management Association, 800-262-
9699; www.amanet.org
Expatriate Compensation: From Concept to
Delivery, New York City, Aug. 10-11;
Silicon Valley, Sept. 26-27. Contact: ORC
Worldwide, 212-852-0379; e-mail:
Felicia.thomas@orcww.com; www.
orcworldwide.com
Fundamentals of Human Resource Man-
agement, Chicago, Aug. 15-19. Contact:
American Management Assn., 800-262-
9699; fax: 518-891-0638; e-mail:
customerservice@amanet.org; www.
amanet.org
Leadership Development for Human Re-
source Professionals, Colorado Springs,
Aug. 15-19 and Oct. 24-28. Contact:
Center for Creative Leadership, Attn:
Client Services, 336-545-2810 (refer to
code SHRM); fax: 336-282-3284;
www.ccl.org/registration
HR Metrics: Adding Greater Value and
Impact in Your Organization, Orlando,
Sept. 12-13. Contact: Human Resource
Matching headcount to the profit
and loss statement.
Industry standard wages and ben-
efits.
Typical turnover rates in the in-
dustry.
Employment practices and the
structure of reward plans.
The cost of contingent labor and
the percentage of contractors and
temps.
Benefit costs as a percentage of
payroll.
Payroll costs as a percentage of
operating income.
Average pay per employee.
Post-employment benefits obli-
gations, such as retiree health and life
insurance.
Planning Society, 212-490-6387; e-mail:
info@hrps.org; www.hrps.org
How to Build, Communicate, and Execute
a Total Rewards Program, Washington,
D.C., Sept. 12-14; San Francisco, Oct. 3-
5. Contact: American Management As-
sociation, 800-262-9699; www.amanet.
org
Retaining the Best and the Brightest, San
Francisco, Sept. 15-16; Atlanta, Oct. 10-
11; New York City, Nov. 10-11. Con-
tact: American Management Associa-
tion, 800-262-9699; www.amanet.
org
Avoiding the Legal Pitfalls of EEO, FMLA,
and ADA, Chicago, Sept. 19-20; San Fran-
cisco, Oct. 3-4. Contact: American Man-
agement Association, 800-262-9699;
www.amanet.org
Strategic Human Resources Planning, New
York City, Sept. 19-20 and Nov. 14-15.
Contact: Cornell University ILR School.
Fax: 212-340-2890; www.ilr.cornell.edu/
mgmtprog
Human Resources Outsourcing Conference,
Chicago, Sept. 19-21. Contact: The Con-
ference Board, 212-339-0345; fax: 212-
836-9740; www.conference-board.org
HRFOCUS / AUGUST 2005 15