Compensation Focus

4 Compensation Best Practices for Merged or Acquired Companies

By Sonnet Lauberth, CCP, PayScale  |  December 2015

When a company is going through a merger or acquisition, one of the key risks is losing top talent. Mergers introduce a period of instability that can make even the best performers nervous and jumpy. Suddenly those Linked In recruiters they've been politely ignoring start to look more appealing. Not to worry. One way to retain top talent during a merger or acquisition is to get in front of the new compensation plan. While this can be an arduous process, finalizing and communicating compensation for the new organization can go a long way to keeping your best employees from jumping ship.

Evaluate Current Compensation Practices and Create a Plan Going Forward

Before you can communicate with employees about compensation, human resources and executives need to determine how compensation will be handled for the new company. Unfortunately, there's no easy answer for how to handle compensation as it depends on the organization, culture and business objectives. Here are a few options with pros and cons for each depending on the situation.

Option 1: Keep Your Plans Separate

If both companies have a compensation plan that follows best practice, is competitive with the current market and is well-integrated within the organization, it might be an option to keep the compensation plans separate. A few things to think about in this case are:

  • It may be easier initially to keep the plans separate, but does having two separate compensation plans create challenges for communications and processes for the new company?
  • Keeping two separate plans may also perpetuate the isolation of the two companies, particularly if compensation strategies and pay practices vary. Remember that employees talk about pay, so consider what the consequences might be if employees found out that others have different base pay or incentive plans for the same role.

Option 2: Adopt One of the Plans

Maybe only one of the companies has a compensation plan in place or maybe one company has recently updated its compensation plan and it makes sense to adopt this for the larger organization. A few things to think about in this case are:

  • Not all compensation plans are created equal and compensation can be very unique to a company. Consider if the compensation plan aligns with the new vision, goals, philosophy and compensation strategy for the broader organization.
    • If so, focus your efforts on communicating with employees about the changes that will be made as the plan is adopted for the larger organization. Have managers discuss with their direct reports how this will impact pay and give employees a chance to ask questions about how it will affect them.
    • If the plan doesn't align well, it might make more sense to adopt one of the other strategies below.

Option 3: Integrate the Two

If both companies have compensation plans in place, consider integrating the two and creating a hybrid. A few things to think about in this case are:

  • How will the ranges and grades be integrated? Will this plan still be aligned to the market and be mathematically sound?
  • How did the organizations benchmark their jobs and do they define the roles the same way? Just because both companies have Software Developer positions, doesn't mean these jobs do the same thing. Make sure to review each of the positions to ensure they are aligned across the companies. If these jobs are doing different tasks, be sure to retitle or level the jobs appropriately to reflect the difference in duties, for example, creating Junior Developer and Senior Developer roles.

Option 4: Start Fresh

If neither of the previous compensation plans makes sense for the new company and combining the plans isn't a reasonable option, then it might be best to completely scrap the previous plans and create something from scratch. A few things to think about in this case are:

  • What are the goals we want to achieve as an organization? Creating an end vision is a great way to ensure your compensation philosophy and strategy will help you achieve your business goals. Decide what's important to your organization and what you want to reward with your compensation dollars, in addition to deciding how competitive you want to be within your talent market.
  • How can we create alignment with jobs that exist in both organizations? Be sure to evaluate your jobs and understand how each organization defines its roles. Benchmark your jobs appropriately to ensure you'll have solid market data to use for building your new compensation structure.
  • Who will be in charge of compensation for the new company? Have a designated person who will be responsible for evaluating and slotting new jobs into the structure, reviewing the plan annually and leading communications to managers.

When it comes to handling compensation during a merger or acquisition, there isn't one right answer for every company. However, by being strategic with your compensation dollars and communicating well with employees, you can ensure you're paying competitively and setting your new company up for success.

For more information on best practices, read the PayScale Compensation Best Practices Report.  

About the Author

Sonnet Lauberth, CCP, is a compensation professional at PayScale.

Read the December edition of Compensation Focus.

Contents © 2015 WorldatWork. No part of this article may be reproduced, excerpted or redistributed in any form without express written permission from WorldatWork.

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