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3 Tips For Handling Compensation Challenges During a M&A

Topics: Comp Strategy
In the spring of 2016, PayScale went through a merger. We teamed up with MarketPay, a company offering technology-enabled services for managing multiple sources of compensation survey data. With the merger, we were able to bring PayScale’s compensation solutions to global companies that are looking for data driven insights on talent markets.

With the merger, we brought over 70 employees from MarketPay over to PayScale team. Before all of this could happen, the HR team had quite a bit of work to do figure out what’s to be done about compensation and benefits.

Brian Webber, PayScale’s Senior HRBP (HR Business partner) was one of the primary people who worked on all things comp and benefits prior, during and after the PayScale-MarketPay Merger. To help HR and compensation professionals navigate this potentially tricky process, I sat down with Brian to learn about his experience, as well as the challenges and decisions the HR / executive team had to make. He also shares tips for comp professionals who will soon go through a merger or acquisition on how to handle compensation, benefits, and employee communication.

Compensation was one of the first pieces of the puzzle Brian began to analyze during the merger process. This work involves evaluating positions, pay bands, pay by location, similar job titles and position responsibilities. This work would inform what type of workforce adjustments would be needed, and how they would impact the budget.

Q: What was the situation you walked into when you had to evaluate pay for MarketPay employees who were soon to become PayScale employees?  

Brian: MarketPay employees had some concerns about what would happen to their pay. PayScale had always used our own crowd-sourced data to benchmark the jobs we have in our company.  But MarketPay did things differently. They have a long history of using traditional survey data (think Mercer, Radford, etc) to determine the pay ranges for their employees. Makes sense, their flagship product is one that helps comp professionals manage dozens if not hundreds of traditional salary surveys.

Using Crowdsourced data to benchmark jobs was a new concept. They didn’t know what we would find when we applied PayScale crowdsourced data to benchmark their positions, and what this would mean for their salaries. 

Really, the concern MarketPay employees had is this: “when PayScale uses crowd-sourced data to benchmark my job, does that mean I am going to be paid less? Will my earning potential be reduced?”  

The merger also brought us a host of new jobs we haven’t seen before. Between the 70 employees who were added, there were about 20-30 new jobs we (PayScale) weren’t accustomed to. Although some of the jobs were similar to existing jobs at PayScale, it was a very different employee profile we were recruiting for and had to try to retain. For example, even though the duties of a MarketPay Client Manager is similar to that of a PayScale Customer Success Manager, these employees came from very different backgrounds. MarketPay client managers were compensation experts used to working for mega-corporations, while many PayScale employees came from the small business or mid-market segments, most new to the world of compensation.

To ensure that this process goes smoothly, we needed to be thoughtful when pricing the jobs. We had to make sure that the jobs are priced using the right data, and our new employees from MarketPay feel confident that they will continue to get a fair deal.  

To do things right, it means taking the time to have conversations with managers, understand what it takes to do every job, the profiles of employees in the role, and discussing what labor market should we use to benchmark this job.

To do things right, it means taking the time to have conversations with managers, understand what it takes to do every job, the profiles of employees in the role, and discussing what labor market should we use to benchmark this job.Click To Tweet

Q: How did you handle benefits and variable pay in the merger? What approach did you choose?

Brian: As part of the due diligence process before the merger, I was responsible for evaluating the total value of MarketPay’s employee benefits (insurance, 401K, vacation, anything that falls under the total rewards umbrella). We had to look at the value of MarketPay’s benefits, employee by employee, and see how they compare to PayScale’s benefits. After getting the results, we decided to merge the two companies’ benefits the following plan year, take the best things from each benefit plan and provide those to everyone.

Q: For comp and HR pros who are dealing with mergers or acquisitions, what tips do you have for them to handle it with style and grace?

1. Understand the jobs

You will come across jobs you’re not familiar with. Make sure you understand them. First, start with the job description, match it to salary data you think you should use and see what sort of result you get. You might find that what’s in your benchmark report is very different from the job’s existing salary range. In fact, that’s what I found in many cases when I was doing the work on MarketPay. In these cases, it means that the job description probably isn’t an accurate reflection of the people in the roles. For example, it could be that the job description asks for an employee with 7 years of experience, but employees who are doing that job has 15 or 20 years of experience.

Be curious. Don’t assume that just because a job’s description (from the company you’re acquiring or merging with) is similar to an existing job at your company, that the pay should be similar. Talk to the hiring managers to understand what’s needed to do the jobs. In my case, I also talked to the employees and tried to get to know them as much as possible. The more you get to know the employees, and the skillsets employees bring, versus the skill sets required in those jobs, the better you can be at pricing those jobs.

This sort of exercise will help you get accurate information for your budgeting process. You might find that you need more budget if you want to keep everyone in line with your target percentile and established ranges. If you do need more budget, you’ll have that information to forecast the revenue growth you need to see.

2. Communicate: Be Open and Transparent About Your Process

Communication is key: the employees are going to be concerned about how their pay and benefits may be impacted. In the PayScale-MarketPay merger, we did not reduce anyone’s pay. We were very intentional about sending the message “You will not see any negative changes to your paycheck”. It’s important to use different channels to share information and get the message you want people to hear as much as possible. Communicate in ways that are convenient and easily understood for employees, and communicate on an ongoing basis throughout the transition.

We also did things slowly, really took the time to understand what the jobs entail, decide what talent market we should be looking at to benchmark the jobs. Even if someone is “red-circled”, we made no changes to their pay.

But even if you do have to make some cuts to certain employees’ salary, you should be upfront and honest. Be transparent about why you’re making the decision you made, once you have all the facts together.

Often, when you have to communicate negative information, you get negative responses. But if you communicate in a transparent way, explain why you’re making the decision, what process you went through, people in general will be quicker to accept that information and make a decision for themselves. If you do decide to make pay cuts, expect that some people will choose to leave. But this is okay, the key is to give people the information they need to make an informed decision for themselves.

If you communicate in a transparent way, explain why you’re making the decision, people in general will be quicker to accept that information and make a decision for themselves.Click To Tweet

3. Share Your Timeline

Employees want to understand what’s going on and how things will affect them. Share your timeline so they know what changes will be made and when. This is especially important if you’re planning cost-of-living increase / market adjustment or pay-band increase.

Tell us what you think

What are the important aspects of handling compensation changes well during a merger or acquisition?

Share your experience in the comments section below.

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