Applied Statistical Data Sciences: M&A Employment Compliance and Auditing

FTI Consulting’s labor and employment practice has extensive experience helping companies involved in mergers and acquisitions. We provide quantitatively rigorous statistical analyses to assist with auditing company employment processes to mitigate potential liability and assess the fit between the labor pools of the two companies.

Too often, when the M&A process commences, insufficient attention is paid to due diligence in the employment sphere. The purchasing company often neglects to sufficiently analyze potential legal exposure or issues in workforce integration (i.e., “fit”), and the limited instances when such analyses are performed, are cursory and quantitatively inadequate. Our team is uniquely positioned to provide the expertise necessary to address both concerns. We are Ph.D. labor economists who have provided economic and statistical analyses for hundreds of labor and employment matters, in both litigation and consulting roles. This experience enables us to understand and analyze employment processes from both a decision-making and risk assessment perspective. Our litigation-ready quantitative analyses provide actionable information that the purchasing company can leverage to limit liability and better understand potential complications when integrating the two workforces.

Analyses

Identifying potential legal exposure and unlawful employment practices:

Wage & Hour – exposure modeling for unpaid overtime, meal/rest breaks, misclassification, vacation pay, etc.

Discrimination – gender, race/ethnicity, age, etc.

Pay Equity – regression analyses to identify significant disparities – base compensation, bonuses, stock options, etc.)
Reduction-in-force assessment – regression analyses to test the results of RIF process for significant disparities; regression analyses to test RIF methodology for validity
Hiring, team building, promotions, discipline, and terminations assessment – regression analyses to test the results of the specific employment process for significant disparities
Performance evaluations – to test the results of the evaluation process for significant disparities; regression analyses to test evaluation methodology for validity

Evaluating potential issues with workforce integration (i.e., “fit”)

Compensation Structure – assess whether companies compensate hourly/salaried employees differently – hourly rates, base salary, bonuses, overtime, stock options, etc.
Hiring, team building, promotions, performance, discipline, and terminations – assess whether companies use different procedures and evaluation tools that may conflict
Hierarchical corporate structure – assess whether discipline, and terminations – assess whether companies use different procedures and evaluation tools that may conflict
Hierarchical corporate structure – assess whether companies possess incongruent workforce structures – job titles, pay grades, allocation of workforce resources, etc.

Why we are Unique

We are unique in that we are Ph.D. economists who have met and conferred with both government agencies (EEOC, DOL, DLSE, various state-level enforcement entities) and private plaintiff firms for conciliation and mediation purposes related to the above employment processes, as well as testified in federal and state court against these agencies/firms should the need arise. Our Ph.D. economists work with our data scientists using cutting-edge software such as Python, Gephi, R, SAS, Stata, SQL, and Tableau to assist the client in holistically assessing the purchased company’s employment data and workforce, providing results that are statistically sound and litigation ready (should the need occur). Our advanced analytical techniques also allow us to find potential issues not previously considered by management through infographics and intuitive data visualizations.

Case Example

In a recent M&A project, our team was retained pre-merger to construct analyzable databases using employment data (i.e., time punch, payroll, and employment history) and perform quantitatively and statistically rigorous analyses to identify potential legal exposure of overtime, regular rate, meal/rest breaks, pay equity, and promotion practices. Given all the lawsuits and large monetary settlements being paid out in the industry for wage & hour violations (namely missed overtime, missed meal breaks, incorrectly paid overtime) and compensation discrepancies (namely concerning corporate-level female and minority populations), our client (the purchasing company) engaged us to analyze these practices for the purchased company prior to completing the merger deal.

Our detailed data analyses identified wage & hour exposure from missed overtime, incorrectly paid overtime (regular rate issues), and misclassification of certain hourly managers, as well as exposure from significant compensation disparities resulting from annual increase and promotion decisions. Both our client and the purchased company agreed with the results of our analyses, and a $15M indemnity clause was negotiated into the purchasing agreement.

Based on the results of our initial work, were also retained to perform an analysis comparing the compensation structure between both companies. We determined that should the compensation structure remain separate for each company, compensation differed enough that there would be considerable pushback and lowered morale on the part of the purchased company. Our client agreed, and with our assistance, new job titles and pay grades were constructed to rectify the differences, resulting in a much more seamless integration of workforces than had been anticipated.