Managing Compensation Differences

​Whether it’s a merger of equals in which a high-level compensation committee will determine and guide compensation policy for the new entity, or an acquisition in which a smaller company or start-up’s employees may be governed by a larger firm’s policies, there are five common compensation issues that HR must tackle in any M&A situation, says Stephanie Penner, senior compensation consultant in the Philadelphia office of Mercer Human Resource Consulting LLC. They are:

1. Understanding why the deal was done.
   
   Knowing the business strategy and objectives—both short- and long-term—behind the decision will determine the level of compensation integration you can expect.
   
   
2. Setting a competitive compensation strategy for the merged organization.
   
   For example, a company with only 10 grade levels will have to integrate the acquired company’s 23 grade levels. And the companies may have very different methods for determining merit increases, as well as short- and long-term incentives.
   
   
3. Deciding which programs and common language need to be redesigned or redefined, such as job titles and pay bands.
   
   The responsibilities of a “manager” in one company, for example, can be very different in another.
   
   
4. Determining costs once programs and practices are redesigned.
   
   
5. Applying an appropriate transition plan to put new elements in place.
   
   This involves easing transitions and uncertainties, communicating the changes to employees and altering HR systems to handle the new policies.