This document discusses the effects of mergers and acquisitions on employee morale based on a literature review. Key points include: - M&A can negatively impact employee engagement, motivation, and retention as employees face uncertainty over their roles and job security. - Communication from management during a merger is important to mitigate these negative effects. Informing employees of plans and reassuring them of their value can boost morale. - Managers themselves may be less productive during a merger period due to changes and uncertainty. The human impact on employees includes psychological stress, cultural clashes between merging organizations, and layoffs.

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Mergers and Acquisitions:
Effects on Employee Morale
10/2/2012
Gaurav Acharya

2. 2
Content:
Abstract 3
Definition 4
Introduction 5-6
Literature review: 7- 13
a) The effects of merger and acquisition on employee engagement
b) Prospective of merger and acquisition from employee
c) Impact of merger and acquisition on employee
d) Effect of mergers and acquisition on employee
e) Human impact of merger
f) The impact of merger and acquisition on shareholder, employee and the
management
g) The effects of an organizational merging on employees
h) The effects of merger and acquisitions on employee moral
i) Effects of low employee moral
j) Ways to improve employee moral
Methodology 14
Results 16-18
Analysis 19-22
Conclusion 23-24
Bibliography 25

3. 3
Abstract
This paper examines the effect of corporate change mainly mergers and
acquisitions and effect of employee morale and productivity and their perception of job,
measured as motivation and workplace retention of these employees. Specifically the
effect of management has in open communication in an organization through times of
corporate transformation on the employees. This investigation will be primarily through a
review of existing literature relating to organizational conversion and its effect on internal
stakeholders focusing on mergers and acquisition. Secondly empirical data gathered will
consist of a sample survey of employees working in Ventura county and their perception
on merger. The initial finding indicates a positive correlation.

4. 4
Definition:
Mergers and acquisitions is an aspect of corporate strategy, corporate finance and
management dealing with buying, selling, dividing and combining of different companies
and similar entities that can help an enterprise grow rapidly in its sector or location.
An acquisition is the purchase of one business or company by another or other business
entity. Such purchase may be 100% or nearly 100% of a business. Acquisitions may be
divided into private and public acquisitions depending on the stock market and the
acquiring company.
There are many types of mergers and acquisitions like the US Legal highlights,
Dissolutions, Sale of majority of assets, mergers and consolidation, freeze out, Stock for
Assets, Stock for Stock, Tender offer, Triangular merger etc.

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Introduction
In the world of business, mergers and acquisitions have become popular mainly
due to globalization, liberalization, technological developments and intensely competitive
business environment. During the recession of 2008 and 2009 there were many small
companies that merged with bigger giants. We mostly saw this in the financial sector as
many financial institution joined hands to restructure the business.
The joining of corporate entities has become a common occurrence in most large
scale business growth plans. It is important, presently to restructure and now it is one of
the best ways for growth and expansion. These mergers are generally anxious times for
employees in both management and the production sides. Change in corporate culture
can affect the performance of employees through the uncertainty in their position, lack of
allegiance to the new entity, new or additional criteria in their responsibility and
reclassification of their new job duties. One of the main reasons to merge is to acquire
market share.
In mergers and acquisitions there is a corporate strategy, finance and management
of dealing with buying, selling or collaboration of a company to create a new business.
One of the most difficult parts in merger and acquisition is to create a strategy in which
employees of both the companies can adapt. This is very difficult as there is a change in
the cultural organization.
One of the challenges that the companies face is keeping the employees who
survive the layoffs in the new company. The nature of layoffs and changing in attitude or

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feeling towards the company from a prospect of an employee plays a vital role as to how
employees react.
This has a negative impact. According to Work Trends one of the data base that
is managed by Kenexa Research institute it stated that 13% of the United States
workforce were gone due to mergers and acquisitions and the highest impact was felt by
those who were India, as most of the jobs were outsourced.

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Literature Review:
The effects of merger and acquisition on employee engagement
According to Jack W.Wiley “Close to 20% of workers in the banking and
financing industry were affected by mergers and acquisitions”. He further states that in
the past 10 years there was a higher level of mergers and acquisitions in the retail
industry. One of the questions that arise in his research was how does the experience of
being acquired by or merged with another company impact employee engagement and its
drivers? What I personally feel is that engagement generally shows a positive relation
between the team performance, customer satisfaction, customer loyalty, net income and
total shareholder return. However, in the case of employees it might be negative too.
They may not be able to adapt properly to other company’s culture. Imagine if we had to
sit in some other’s seat for one lecture. Can we perform better? I think we will not.
Although it is very hard for the employees to adapt the management thinks that the
increase in the level of employee engagement helps the corporation in increasing
effectiveness.
Prospective of mergers and acquisitions from employees
A research was conducted by the Kenexa Research institute which wanted to
know as to how the negative effects of M&A can be mitigated? The research in this field
was done by a database called the work trend and the employees were divided into two
segments. There was couple aof scenarios that was given to the employees. The
employees who were “employee centric” did better than the other group. The result

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proved that it could be mitigated if the senior managers showed concern towards the
employees by communicating to them and informing them the steps that the company is
taking and also telling them as to how the employees are important to the organization.
The research conducted by Work Trends stated that merger and acquisition has a
negative impact on every aspect of how an employee looks at the organization. The
employee feels insecure and thinks of leaving the job. This could be stopped if company
leaders shows its staff the upcoming vision of the company, giving timely information
about the merger’s plan of action and give them the assurance as to how bright the future
looks of the company this will result in higher motivation and in performing better in
future.
Impact of merger on employees
According to the research conducted by Wayne, being merged and acquired has
a pervasive and negative impact on all the aspects of the employees and how they view
the organization. It shows the feeling that an employee has over the company and its
feelings about the future. These motivate employees in leaving their jobs and going to
some other company.
An article that was written in business week stated that managers also have a
huge impact, as the managers who are coming from a merged company tends to be less
productive than the organization without any recent merger and acquisition activity.
Effect of Merger and Acquisitions on Employees
When two companies join hands it is very common to see as to how mergers
affect employees this is mainly due to uncertainly of work that generally covers the
employees at the lower and middle level of management. Questions like which

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company’s policy to be followed and what are the new rules and policies? What should
we do, what are the new strategy and its reward? These kinds of questions create much
confusion and chaos. This also increases fear in the employees of losing jobs. They
cannot cope up with such kinds of changes. Feeling of anxiety can bring in absenteeism
or employees quitting their jobs. This kind of changes affects the productivity and output
level. Ineffective communication future strains the communication level between
employers and the employees. Relocating at different office makes employees feel that
they have been left out.
Human impact of merger
During the time of merging human resource is mainly held liable for the failure of
merger and acquisition (Mercer 1989); The process has a severe impact on employees
like the psychological effect in which the employees are not given enough support.
During mergers employees are not informed as to what is happening within the
organization; this mainly leads to lack of communication in the organization and
employees fear of losing jobs. Employees are also at the verge of leaving the company as
they do not know as to what will happen to them. Cultural clash also takes place between
the employees of both of the organization.
Employees have different sets of working styles and when they both are put
together to work the productivity of both the groups is low. Also, there not enough
direction given during the time of merger to the employees as managers are themselves
not very clear as to what to tell to the workers.
When there is merger and acquisition there are sets of two employees for one
particular project and that is mainly an operating cost for the company so right after

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mergers there is a series of layoffs and downsizing. From the prospect of the company
there are many benefits, such as a boost in the morale of other employees.
Downsizing proves that the remaining employees of the company do take care
however; this is not true as many employees leave the company after the announcement
of merging is made. A U.S study found that almost 50% of the executives in acquired
companies leave within one year, 75% within three years and 58% of managers within
five years (Walsh 1988). This data of Walsh gives me an idea that change in
organizational culture may not tend to be fruitful to the upper class of management.
The impact of merger and acquisition on shareholder, employee and the management
According to the article that was written by McDuffie for the University of
Pennsylvania the impact of Mergers and Acquisitions on top level of management may
actually involve a “clash of the egos”. When the two companies merge there is a variation
in the company culture for the managers. Managers are told to use the strategies which
they are not familiar with which mainly leads to confusion. This would create loss in
production.
Shareholders are mainly of two types when the company mergers. One is the
shareholder of the acquiring firm the other is the shareholder of the target firm. The
shareholder of the acquiring firm is benefitted the most during the time of merger as the
acquiring company generally pays more dividends. The benefit enjoyed by the
shareholder is of the company is the same as the harm they are into.
The Effects of Merger and Acquisition on Employee Morale
Employee morale can be significant if it is not recognized as significantly in
business, and if it is not handled effectively. During the time of merger and acquisition

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there are mainly two groups of employees that are involved. The employees who come
from a different organizational culture faces a new challenge about uncertainty of the
future is concerning them. They are also in the feeling as whose job will go. There are
many consequences that the employees feel first and foremost there is the stress. Change
is very difficult for the workers if they are not directly involved in decision making
position. Workers jobs are impacted from this as the level of efficiency tend to decrease.
They might be given a chance to improve however, if the worker is not able to cope with
the new stress he or she may be terminated.
During the time of merger and acquisition there is a lot of difficulty that an
employee goes through, the first and foremost is the stress. Stress can have a huge impact
and according to Linda Pophal communication is a must during the time of merger as it
informs the employee as to where they are at this time. The management can tell the
employees as to what to expect in coming days so that can and how the changes will
affect them.
Another important factor that an employee faces is the fear of job loss. When
two companies come together they never have a similar culture in them which results in
cultural clash between the two parties. In this situation employees fear losing jobs and
this leads to a negative impact on the productivity or leads an employee to leave the job
and go work for some other company. In this particular phase it is very important for the
management team to provide opportunities to the employees and the management should
address the concerns that an employee has and try to create a new culture for both the
parties.

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When employees are concerned with the job they are more competitive and this
also leads to cultural conflict. Although competition is good at the workplace however,
negative competition is not good as there might be violence at the work place. Employees
escalate conflict. In this time period, it is very important for the management team to alert
employees about negative competition and ensure that employees are given knowledge
about the consequences they might face.
Effects of Low employee morale
According to a survey that was done by Worldwork, it was found that during the
recession of 2008-2010 the level of employee engagement dropped 9 percent than the
previous year. A survey which was conducted showed that more than 40 percent of
employees felt that changes in pay and benefit over the past years had a negative impact.
An unhappy employee can cause trouble in the customer service industry; he or she might
be rude with them which would result in losing consumers. Low morale leads to turnover
in an economy. The cost of employees not showing to work and other factors are an
expensive factor to the company. This leads to decrease in the production of any kind of
goods and services and the company might go out of business. Going out of business
means employees again losing jobs and we would never want this to happen. Therefore,
to save a company from going out of business a manager should be more flexible with his
or her workers.
Ways to improve Employee Morale
When employees face low morale at work they are generally less productive
than they can be. In business employee’s morale plays an important role in production as
an energetic person is more productive than others. If there is a high morale in the

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employees there is minimum wastages and maximum outcome. During M&A there is
low morale in the employees and this causes absenteeism in the employees which results
in low productivity. There are many ways to boost the morale of the employees like
improve the working conditions. Many employees are unhappy today mainly due to their
working environment that they have companies should give them facilities like work
from home or the company can also allow them to bring their kids to work with them
atleast once a month, this would help an employee feel that he or she is with her family
and this would help in higher production of work.
Breakdown in communication between manager and employees also affects the
morale of the employee. In today’s time many organization are transparent every person
in the business organization knows as to what is happening in their company this helps in
building a healthy relationship between the workers and this also helps in reducing the
communication gap. Mac Duffie on his research stated that to improve the moral of the
employees the companies should adapt to “employability” meaning that the companies
should provide trainings in numerous training that if the employee loses his job due to
downsizing or layoff he or she could get a new job.
Another way of improving employee morale is by rewarding the employees.
Rewarding not only means cash reward but an organization can implement numerous
plans like bring programs like employee of the month in which the winning employee has
a private parking space in the office this generally makes an employee proud of
themselves.

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Methods
For the second part my research in mergers and acquisitions and its effect on employees
will consists of two parts. There will be a series of ten questions and those questions will
be divided into two parts.
The first half will have series of questions to the employees as to how their manager
treats them at work.
The second half will be on the employees as like how they are dealing with the problems?
How is the communication and how their work is all about.

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Survey questions
1. My supervisor appreciates me.
2. My supervisor delivers on promises.
3. I trust my supervisor.
4. My supervisor shows too little interest in the feelings of subordinates
5. I have too much work to do it well.
6. Many of our rules and procedures make doing a good job difficult.
7. I have too much to do at work.
8. I sometimes feel my job is meaningless
9. I enjoy my coworkers
10. Communications are good within my work unit.

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Results
This results that I have gathered are from the survey that I took from the employees who
were working in different areas in the field of business. These people to whom I handed
out the survey questions I met them at Bank of America in downtown Ventura. The
questions that I asked in the survey were fairly simple and it was easily understood by
many. There were ten questions asked and the score was ranging from 1 to 5 1 being the
lowest and 5 being the highest. From all the answers I could make out that many were
facing the circumstances at work. Couple of my questions focused on the treatment done
by the supervisors and then half of my questions were mainly work done by the
employees and their coworkers.
My first question was my supervisor appreciates me? Out of the total points I found the
mean to be 4.2 and the standard deviation to be 1.19.
The second question was my supervisor delivers on promises and out of the total the
mean was 3.9 and the standard deviation was 0.51.
The third question was I trust my supervisor and the mean was 3.8 and the standard
deviation was 0.83.
The forth question was my supervisor shows too little interest in the feelings of
subordinates and the mean for this questions was 3 and the standard deviation was 1.04
The fifth question was I have too much work to do it well and the mean was 3.3 and
standard deviation was 0.85

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The sixth question was Many of our rules and procedures make doing a good job difficult
and the mean on this question was 3 and the standard deviation was 1.04
The seventh question was I have too much work to do and the mean was 2.7 and the
standard deviation was 1.09.
Question number eight was I sometimes feel my job is meaningless and the mean was 2.5
and the standard deviation was 1.60.
The ninth question was I enjoy my coworkers and the mean was 3.8 and standard
deviation was 1.26.
The tenth question was communications are good within my work unit or department and
the mean for this question was 4.3 and the standard deviation was 0.85.

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Analysis
Aftermath of mergers and acquisitions impact the employees or the workers the
most. It is a well known fact that whenever there is a merger or an acquisition, there are
certain uncertainties within the employee of job satisfaction as well as their job security.
The unit of observation in this study from the individual worker is limited but will
provide us with empirical evidence on the effects on the morale of the employees.
Over all survey result clearly shows the dissatisfaction of employees towards their
immediate supervisor/management. This is the main problem when mergers and
acquisitions happen within the company. Employees are very tied up with their daily
work and its process. In the course of time they build the bond with their coworkers and
their management. When the new management takes over there will be certainly some
changes weather it is new managers or work process within the course of time and
employees don’t want change. This is the problem that creates tension between employee
and management and will result in low morale of an employee which will result in
decline in motivation towards work and trust towards their immediate
manager/management.
When people were asked about the work, I got the mixed feedback. Some said
work load went high where as some was saying that it remained same. But no one said
that the work load went low which isn’t surprising to me and there is a saying there is no
such things like free bread. In of the survey question it clearly showed the employee
thinking of their work load in the new management which is average to above average.

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One of the survey questions was if the job people were doing was worth doing or not.
Surprisingly the outcome of the survey was disaster. 95% of the people were very
dissatisfied with the job that they were doing. When I asked them if it was the trend
before the merger some were hesitant to answer and those who came forward said that
this happened due to the change in the management.
When asked about the co-workers got the result what I was expecting. Most of
them were above average which means they were happy because they were bonded,
helped and supported each other at the transition period of the merger. Nobody is happy
with the management and their rules and the procedures which makes job difficult but at
least people are being supported and being helped by their subordinates.
During mergers and acquisitions it is important for managers and HR
professionals to be alert to signs of negative competition and to ensure that employees are
being kept informed about impacts on their jobs and their futures with the company.
While some competition is good, competition is not good when it creates tension and
negative conflict in the organization.
When asked about their supervisor if they show interest in the feelings of
subordinates most of them agreed to the statement. During the merger and acquisition
process, managers need to allow employees to express concerns about their future.
Managers and supervisors should be able to listen to current employees and address their
concerns. It is also important for organizations and their supervisors to recognize
opportunities for employees to get to know each other, to openly address concerns, and to

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work together toward the creation of a new culture that will merge the best of both
worlds.
It must be noted that there is a remarkable difference between acquisitions and the
unification of two companies can play out very differently in different scenarios. The
employees of large company deal with such problem better than their corresponding
person, working in relatively smaller companies. That’s is why most employees agreed to
the statement that sometimes they feel that their job is meaningless
Communication is a key to success in every business. No matter how or when the
merger happens, communication within the organization must happen. After taking the
survey everyone has the mixed feeling about the communication within their work place.
Mergers and acquisitions offer different challenges and one of the challenges is keeping
those employees and notifies those employees their values and what they can bring as
valued employees to the new company. This can be done through proper communication
from upper level management. There is need for developing and executing effective
employee communications, particularly conveying the employees that how the transition
will impact organizational members. Communication between two merger companies as
well as all the employees should be clear, open to questions any time anywhere.
Mergers and accusations impacts more when there is a cultural shock if
companies involved are from two or more different countries.
Although mergers and acquisitions will lead to the company having better access to
capital for expansion of operations, it must be emphasized that the fates of employees lie
in the hand of the employers. There is a great need that the mergers and acquisition be

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undertaken with due consideration of how best to manage and reduce loss of
employment.
There are indeed many factors that lead an employee of an organization to be
dissatisfied. There is a saying that the day when you don’t feel like working in the
company any more you should leave the company and look for some other job. Literature
review clearly supports my statement in this topic the first and foremost of my discussion
is the effect of mergers and acquisition on employee engagement. From the research that
was conducted by Jack W. Wiley it showed that organization culture plays an important
role in a person. It is indeed very difficult for a person to work in a totally new work
environment; a person’s performance will decrease.
Mergers also have a negative impact on all aspects of the employees and how they
view their organization. From the literature review I found that when two corporations
join hands it is very difficult for the employees to work as there is a new set of
organizational culture that they face. Employee tend to have different sorts of feelings
and numerous types of questions arises in their mind. From the study we can also see the
cultural clashes that take place within the organizations. Sometime communication is not
clear in the organization which makes an employee leave the job.

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Conclusion
Today mergers and acquisitions have become a part of industrial life. Over the last
decades around 10-15% of workers working in U.S have been impacted through this. The
workers value at beginning does not decline till the time there are no layoffs involved.
Mergers provide an opportunity to change. They can be used to create a stranger and
more resilient company. The study and researches has shown that human aspect of
mergers and acquisitions should be given equal importance like companies give financial
or other concerns.
A strategy for dealing with the culture of a corporation and human resource is very
important to the success of mergers and acquisitions, however, some issues are hardly
considered until some serious difficulties or problems arises.
Human resources of the company must stress on honesty, clarity and a feeling of
involvement by employees. Carefully designed integrations programs needs to deal with
communication, transitions, management, organizational structure and staffing process
and there should be development of common policies and practices. Senior leaders of the
companies should give its employees a confidence that there is future for them inside the
company this way the confidence level of the workers get high and the efficiency
increases. The decline in confidence can offset the employee-centric managers.
From all the survey that was being taken what I found out was that employee morale is
very important. All of my questions to find the hypothesis like the mean and the standard
deviation. One of the most important and common factor that I found was if the
supervisors are not good; meaning they do not appreciate an employee or do not
communicate with them and due to this morale of the employees go down.

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Imagine yourself being in that situation what if your supervisor does not trust you? You
being the employee of that institution will never be motivated to work for him. Your
efficiency will decrease and eventually due to this factor either you will quit the job
yourself or you will be fired.
During mergers and acquisitions an employee feels that he or she has to much work to be
done which sometimes is true as during downsizing many layoffs takes place and work
will be divided in very few hands. In this time period insecurity of job within the
employees takes place. Employees are stressed out and to relief the stress they might start
consuming excessive alcohol or other harmful substances which are injurious to health.
In today’s economy all companies emphasize that their employees are their valuable
asset. The companies should always back up with material once they make these kinds of
statements. Companies to show gratitude towards their employees should provide them
with some training that if by any chance an employee looses their job they should have
some kind of training with them that helps them in finding better job.
For an employee to be motivated to work one of the important factors that the supervisor
should keep in mind is communication. Communication plays an important part in the
performance of an employee. Imagine that in the production line supervisor does not
communicate well with his or her team the product produced may not be adequate. To
have a healthy working environment a good and enjoyable workplace is very important.

25. 25
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