Employees who’ve undergone a merger know the situation all too well. During the first All-Hands meeting, the CEO looks into the camera and tells newly acquired employees nothing will change.
Then HR waltzes in. Benefits will change. Incentives plans will be redesigned. Job titles are under review.
None of this is dishonest exactly. Leadership wants stability. But the reality is employees from acquired companies are now under your pay structures. They’ll receive bonuses according to your strategy. They’ll be changing insurance providers.
Every M&A is different. Although compensation decisions should follow a consistent playbook. Getting pay right protects the value of your acquisition, especially in earlier days when employees are most likely to jump ship.
Here are some best practices for handling compensation and benefits as an acquiring company.
Understand the actual jobs before making any decisions
The impact of mergers on employees is heavily influenced by how well (or poorly) acquiring companies understand what employees actually do.
Job titles are unreliable. Before you slot anyone into your job architecture, build their actual profile first. What is this person’s day-to-day role? What decisions do they make? What skills are required? How does the role map to your existing levels?
Also: is the work correctly classified as exempt or non-exempt under FLSA? An acquired company may have been classifying a role incorrectly for years. That liability transfers to you.
Once you understand what employees actually do, you can make decisions about where they belong in your structure. And one of the most important decisions is what to do with their former titles.
Keep the title. Change the actual position.
One of the most disruptive things you can do is changing employees’ titles. It impacts their professional identity: how they present to clients, colleagues, and future employers.
The best approach lets newly acquired employees keep their forward-facing business titles, while slotting them into the correct role in your job architecture.
Acquired companies often have less employees. In your organization, a VP of Finance might map to a Director of Finance instead. The employee keeps their VP title, but you get organizational clarity. You’re mapping people to your architecture quietly without rebranding them.
Internal alignment matters for market adjustments, career progression, and future hiring decisions. External titles are how employees explain who they are. They can coexist peacefully.
Red circle employees instead of decreasing pay
Slotting employees into your pay bands might push them over range. The temptation to “right-size” their pay is strong. Resist it.
Reducing the salaries of employees you want to keep is the fastest way to lose them. It signals all the wrong things. It’s not really a partnership. You don’t care about them.
Red circle these salaries instead. Communicate with them that you’re freezing their pay at their current level, making it clear they won’t receive increases in the near term. Then offer lump sum bonuses or variable pay to bridge the gap.
This approach protects pay equity while signaling that you value what these employees offer. Your red-circled employees might have valuable institutional knowledge or client relationships. Losing them to save money is false economy.
Offer retention bonuses
Some acquired employees are so valuable that you really can’t afford to lose them. Senior leadership often falls into this category.
According to a study from WorldatWork, acquiring companies offer retention bonuses to C-suite more than other salaried employees.
Most acquiring companies hand out cash bonuses between 25% – 100% of base salary for employees whose loss would significantly disrupt operations. The size of retention bonuses depends on the employee’s seniority and value.
Some employers also use equity to sweeten retention packages. Stay for three years and you’ll receive a payout. It’s how you keep key talent in seat.
Communicate honestly, even when it’s uncomfortable
For employees without a retention bonus, decisions are made on a case-by-case basis.
The questions employees ponder during a merger don’t simply disappear. They get louder. Rumors turn into facts. Employees fill in the gaps with the worst assumptions.
So, here’s the blueprint. Are you ready?
Communicate early. Communicate often. And, most importantly, communicate honestly. Even when the answer is “we don’t know yet.”
Silence sends a potent message, and it’s never a reassuring one.
If you need employees only through a transition period, tell them: for instance, an IT person for 12 – 18 months while systems are integrated. Offer an agreement with clear terms: duration, incentives, etc.
Employees respect honesty far more than vague “everything is going to be all right” corporate soothsaying.
For employees whose roles are genuinely at risk, that’s a harder conversation. But you should be clear about your intention before contracts even enter the picture. Work with sellers so they understand what roles you’ll keep and those that’ll be eliminated.
Benefit changes hit harder than you think
Of all the HR issues in mergers and acquisitions, benefit changes carry an oversized emotional weight. What’s the difference? Insurance Carrier X vs. Insurance Carrier Y.
But employees will balk if they suddenly find their preferred doctor isn’t in network. Maybe an employee is going through cancer treatment (God forbid). What do you tell them? We’re putting your treatment on hold through the transition? Good luck.
Health insurance. 401(k) matching. PTO accrual. Parental leave. These aren’t just line items for employees. People plan their lives around total rewards. It impacts retirement planning and medical costs. It’s about whether they can afford to start a family or not.
When benefits change (and in mergers they will), communication about those changes matter as much as the changes themselves. Give employees time to understand what’s shifting and why.
Offer side-by-side comparisons of new insurance plans in plain English, not jargon. Create forums (town halls, Q&A sessions, and Slack channels) where employees can ask questions.
If your total rewards are objectively better in most respects, don’t hesitate to show your plumage. But also, don’t dismiss employee concerns. A higher 401(k) match doesn’t automatically offset the loss of a health plan with a lower deductible. It’s human nature to focus on what we’re losing before appreciating what we’re gaining.
And make the transition as quickly as possible. Considering the employee undergoing cancer treatments or another with a chronic illness, you should come prepared with a temporary plan.
The brass tacks: mergers and acquisitions are as much about people as about financials
Human resources are as important to successful mergers as financial considerations. Most of the time, you’re not buying an organization for its people as well as its market potential.
Get the compensation decisions right: offer retention bonuses, red-circle employees over range, understand job profiles, and let people keep their business titles. And get the communication right: be honest and forthcoming. Finally, treat changes in benefits and total rewards with the care they deserve.
Mergers are only successful when you build honest-to-goodness trust with the acquired employees you plan to keep.
