Human Resources is generally one of the most underrated assets of any company and any acquisitor should be undertaking good HR due diligence. Jayne Morgan, MD of Global HR, shares her experience of working on HR due diligence for a company being considered for acquisition. Jayne begins by looking at the employee pool to get a basic understanding of the demographics and the structure as well as uncovering any potential liabilities in order to avoid any surprises in the acquisition.
Here’s 4 x key areas that you’d be well advised to have considered:
Position Descriptions & Structure – Ensure that you have the right structure in order to meet your business goals and have a clear understanding or responsibilities for each role required. This shouldn’t be about what the employee does but about what the organisation needs the role to do. From an acquisition point of view, they need to show reporting relationships, position responsibilities, departmental responsibilities and how they fit together vertically and horizontally.
Up to date Employment Terms & Conditions – It’s a good idea to look at all your terms and conditions of employment which could range from fixed-term all the way to zero hours contracts. Are your employees on the right contracts? It is recommended that you carry out an audit of your terms and conditions to ensure they are legally compliant following UK legislation changes. You may have employees on different terms therefore they would not be treated equitably. An acquisitor will be looking at probationary requirements, notice periods, lock-in periods, non-compete clauses.
Benchmarking your Reward Package – As a major cost for a company this will be a key factor on deciding if your company is a good fit. Are your salaries proportionate and consistent? Have you ever looked at the value for each position in your business and benchmarked them with other external companies in your location and industry? Suppose the acquirer is paying £30,000 for a Sales Executive but you’re paying £50,000…the acquirer either has to increase the salary of its own Sales Executive or decrease the salary of your Sales Executive. This could be a fine balance to the success or failure of a deal. Have you carried out a gender pay gap analysis? The acquirer would not want a surprise Gender Pay Gap issue to manage. It is not just about salary though, reward covers the wider benefits package such as pensions, annual leave, healthcare benefits, flexible working etc.
Up to date HR Policies & Procedures – These play an important role in supporting a culture of trust, fairness and inclusion. They outline the responsibilities for both you as an employer and your employees. They have an impact on your business’ reputation as well as employee motivation. If you already have them in place, they should be reviewed and updated each year to ensure they are relevant. If they are in your handbook you should think about separating them because who reads through an enormous handbook? If you don’t have any you’d better get developing core policies. Certain HR policies and procedures will be specifically needed to comply with the law. For example, a written health and safety policy is required for any organisation with five or more employees, while there are also important legislative provisions surrounding the setting out of formal disciplinary and grievance procedures.