|
CompensationMaster Newsletter Article, June 2002 One of the best ways to grow a business is through mergers and
acquisitions. However, while increasing volume and market share is important,
it can come at the expense of profit.
If you are considering a merger or acquisition, you'll be
performing due diligence on many aspects of your partner's operations. Here are
some issues relative to the sales force that you need to consider:
1. What sales force assets are you buying? First, look at who
is generating revenue. Check production levels for the past three years. Will
the people who are producing most of the volume stay long enough after the
merger or acquisition for you to get a return on your investment?
They might not if they had a close relationship with an owner
or manager who will be leaving, if they will be uncomfortable in the new
culture, or if they are nearing retirement. We've seen cases where 50%-in one
case 80%-of the sales force quit shortly after an acquisition.
While you're looking at who is producing the volume, see if
profit comes from the same sources. It's not unheard of for top producers to be
the least profitable members of the sales force.
Also look for special alliances that may be the sources of
significant revenue. Will those relationships continue after the merger or
acquisition?
2. What is the value proposition this company offers to its
sales force? Do they pay above market rates? Do they pay below market rates and
offer a lot of sales support, perquisites, or a particularly pleasant working
environment?
Does what they are doing make sense? Are their plans aligned
with the current needs of the sales force? They may be providing goods and
services that aren't necessary anymore. As part of your due diligence, ask the
sales representatives how they want to be paid. Find out what level of support,
benefits and perquisites they want and need.
You may discover a major opportunity to rationalize the
offering. We have seen cases where the entire acquisition was paid for by
eliminating unnecessary benefits and services and realigning compensation plans
to better serve the needs of the sales force.
3. What will result from combining the two companies? Be aware
that the value proposition they offer to their sales force changes as soon as
you buy the company. Can your value proposition and theirs be merged?
Many companies underestimate the difficulty of integrating two
sales forces. To simplify things and make the transition easier, many companies
allow sales representatives to stay on their existing compensation plans for
some length of time. But representatives are bound to compare commissions and
hurt feelings can result.
It's particularly likely if one company pays more generously
and the other offers more services. The company may find itself in a position
where they are forced to combine the plans and end up providing a high level of
services with a high commission. That's a recipe for disaster.
This is a great opportunity to introduce a new compensation
structure for the combined company, one that is perceived as consistent and
fair to everyone.
Most companies tend to rely on reducing duplicate costs to
bolster the bottom line after a merger or acquisition. However, major cost
savings can also be obtained from redesigning commission structures and
re-aligning them with the goals and growth plans of the combined company.
Even more important is that enhancing the value proposition for
sales associates motivates them at a time when it is particularly important to
do that.
Back
to Newsletter Archive
|
