The mergers and acquisitions trend continues with strong momentum in 2019. Companies like T-Mobile/Sprint, Keurig/Dr. Pepper-Snapple and Centene/Wellcare are all working to come together. When two companies merge, there is much to consider when it comes to structure vs restructure and compensation implications.
As a compensation professional, an M&A means you are suddenly faced with an onslaught of employee fears, concerns, questions, and even mistrust in the process of how a new compensation plan might be determined. Because of this, you might be tempted to dive in and make decisions quickly. Our advice? Slow down.
Before you can even begin to consider how a new comp plan might look, there are certain things you must do to prepare, information you should gather, and topics you’d be wise to research. If you take your time and approach this process correctly, you are more likely to ensure a fair comp plan for your organization. Read on to avoid the five most common mistakes we’ve seen HR professionals make when it comes to organizing a comp plan during mergers and acquisitions.
Mistake 1: You haven’t identified and summarized the ROI of a new compensation plan
When you are in charge of managing a comp strategy after an M&A, there’s a lot of work you must do. Consider the time it will take to blend jobs, pay ranges, salary structures, and so forth. You need to be able to know the cost of putting together a new plan and the ROI of that work, especially if you plan to get business leaders on board before you begin. If you cannot explain the ROI of the work, you’ll have a much harder time obtaining stakeholder buy-in. So, be sure you can justify the cost of the project plan by knowing the ROI for that work.
Mistake 2: You haven’t involved managers
This might seem obvious, but bring in managers before any mergers and acquisition project work begins. If you don’t include managers in the conversation, you could end up focusing on the wrong things. For example, you may spend your energy on job title consolidation when employees actually care more about pay range visibility and equity. By securing early adopters in the conversation, you can evaluate what is important to management regarding internal equity of jobs. You can also better determine the current perception of pay and titles.
Mistake 3: You start the process with job consolidation
This is our most important M&A tip regarding compensation integration. Never start with job consolidation—it’s like reorganizing your closet while most of your clothes sit in moving boxes, unpacked. Instead, start by benchmarking all existing jobs to the market with the same dataset. This will help paint a clear picture of what jobs, regardless of legacy titles, have the same or similar market value. Next, use this market data to build fresh pay ranges for every existing job. Tools like PayScale software make this process easier, or you can “slot” jobs in existing pay grades/pay band structures.
Mistake 4: You change your pay structure without knowing where employees currently fit into it
In 2016, PayScale went through a merger when the company teamed up with MarketPay. More than 70 MarketPay employees joined the PayScale team and, as a result, HR worked to craft a fair compensation plan for new employees. Brian Webber, PayScale’s Senior HR Business partner, was one of the primary people who worked on comp and benefits during the merger. According to Webber, MarketPay employees were concerned about how compensation decisions would be made. “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,” Webber said in a previous PayScale article about the merger.
The bottom line? Take stock first, understand where new employees fit into your pay structure, and then decide what changes are warranted and valuable.
Mistake 5: You fail to communicate the process to employees
In our experience, the number one culture killer during mergers and acquisitions is perceived inequity. According to a Mercer study, 75 percent of executives surveyed said communicating with employees and harmonizing corporate culture were the most important factors for post-merger integration. Once you finish your benchmarking exercise, you must communicate your findings to employees. Pay equity is much more important than title equity and should take priority in your work. You need to communicate with your employees and help them understand a Sales Representative and an Account Executive have the same benchmark/market rate/pay range before you worry about if – or even how – internal titles should change.
When all this is done, decide if internal job title consolidation is valuable to your customers, your company, or your culture. If the answer is yes, use the market benchmarks as your guide. If multiple roles are benchmarked to what the market typically refers to as a Software Developer, just call them all Software Developers.
Avoid Mistakes, Plan Ahead and Move Forward with Confidence
Mergers and acquisitions are exciting times for employers and employees if you plan effectively. Avoid these common mistakes and you’ll find yourself in a strong position as you move forward with compensation integration after an M&A.