HR DD
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When the company is not performing well and the board and executive compensation package is at its highest, how do you view this?
To me that indicates a gross misalignment of compensation with performance unless there are some exogenous factors impacting company performance in the short-term. If the company continues to perform poorly despite a benign macro-environment, and EC compensation remains at all-time highs, I think the both the board and EC risk key talent losses as those capable employees will seek opportunities to work for better performing firms with a more balanced pay structure.
HR DD processes and human capital are essentially important DD tasks for a successful M&A.
As HR DD seeks to:
Prevent loss of talent pre and post M&A deal
Boost productivity by retaining talents that fits buyer’s vision for the company
Avoid misalignment of culture, processes and communication
Avoid internal conflict due to different decision-makingto me this is a serious matter as it clearly signifies that the compensation is not aligned to performance especially at management levels. And executive compensation being high when the company is not performing well also indicates the culture and the though leadership at senior levels. Some of the key questions that needs to be asked :
1) How did their compensation levels move over a 5 year period
2) Was the compensation increased prior to the M&A process and if yes, this signals a serious integrity issues at management levels
3) What is the external benchmark for similar roles and within similar sectors. Based in this data, we can surely analyse the difference vis-a-vis the market.
4) Introduce variable pay (30-50%) in executive compensation based on performanceI would be concerned if those top dollar executives were going to leave the company. In my industry, this would be a red flag as most of the talent that would want to be retained would be at the shop floor level. I would be concerned that the employees were already looking to leave and this acquisition would be an opportunity for them to either leave with severance or ask for more compensations. Another area that should be focused on in the PMI stage is harmonization of the two companies compensation and benefits as keeping that gap may start to infringe on labor laws in certain countries.
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