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CompensationMaster Newsletter Article, July 2002 When companies go into a merger or acquisition, there is often
a tendency to leave compensation alone—the feeling is that the ownership
change will be traumatic enough without changing the commission structure too.
However, this leads to problems. Invariably, representatives
compare plans. There are bound to be differences: different commission levels,
base salaries, incentives, perquisites, benefits and more.
No matter how generous the plans are, representatives are going
to feel that "the other guys have a better deal."
One company's reps see that sales associates at the other
company receive a higher commission, while the other company's reps notice the
higher level of administrative support and lead generation the first company
provides.
To keep everyone happy, there's a tendency to creep towards a
plan that has the best of both—higher commissions and higher levels of
support, services and benefits. This can be disastrous.
The longer it goes on, the worse it becomes. Top producers have
the leverage to cut better deals for themselves, and resentments build and
fester.
Additionally, the longer plans are left alone, the harder it
becomes to find a good time to make a change.
Right after a merger or acquisition is the perfect time to
rationalize compensation. Creating new compensation plans makes a clear
statement of the company's goals and positions everyone to move forward without
the baggage of the old arrangements.
Start by asking sales people from both companies what they like
and don't like about their compensation structures. You'll get good feedback
that will help you design new plans, and you'll also have information about
what works and doesn't work that you can use to better manage the combined
sales force.
The simple act of asking what they want sends a powerful
message to the sales force and is an excellent retention device.
Then you need to decide what value proposition you want to
offer the sales force. Can you combine what each company is doing now? If one
company has a particularly attractive culture, you may want to transition
everyone to that offering. Or it may make sense to start over with something
brand new.
You can take this opportunity to rationalize the compensation
structures, bringing them into line with what the sales force needs and wants.
Maybe some of the services or benefits one of the companies offered are no
longer needed. We have actually seen companies pay for an acquisition simply by
restructuring compensation.
Don't forget to do a thorough financial analysis of any
proposed changes. We saw a merger once where one of the companies offered a
very generous commission at high sales levels, which they could afford to do
because very few people ever reached that level. The company they merged with
had far more high producers, and when management decided to offer that plan to
everyone they quickly found themselves in serious trouble.
Of course, you need to take into account the revised cost
structure of the new company. You'll be saving money through consolidation and
reducing duplicate costs. Those savings can go to the bottom line.
Or you might invest them in your sales force by designing plans
that provide higher commissions—which would be highly motivational to the
existing sales force and very useful for recruiting.
By taking advantage of a merger or acquisition to revise your
compensation plans, you can better meet the needs of the combined sales force
and position your company for greater growth in the future.
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