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Does anyone have any experience with acquiring companies wherein the pay structure of the target is materially higher than that of the buyer, and if so, how do you manage this without creating risks of losing people through constructive dismissal suits, unexpected retirements and resignations?
This will have to be an identified risk during the DD process. If this is something that will be accepted, I would focus on key talent that you would like to retain and offer them a retention agreement and incentives for staying. I have been part of a merger where the organization is very “top heavy” and we would retain their level of pay but would demote their job title and vice versa. You can also adjust profit sharing, bonus structure and other benefits to impact total compensation.
Its quite a tricky question.
Company A could be paying $1.3x amount for this role.
Company B (been acquired) could be paying $x amount for the same role.Staff at company B obviously would not very pleased with this situation. Therefore the management of the two company would have to decide which key talent(s) to retain.
Differences in pay can cause low employee engagement. A strategy around retention should be a key focus area in the near term to avoid and value destruction. Retention plans can be developed for employees identified as critical to integration.
If the personnel in question is critical to the success of the company then he/she will need to be retained on the higher salary and/or a retention bonus. This can be made clear and transparent that after the critical period is over a compensation review will take place. During this time the company should also develop alternative plans and develop other staff to replace this staff as a mitigation plan.
Just a sidenote: this can be also an opportunity to streamline the resources. Not providing attractice packages can help to get rid of the workforce, without necessarly going through an official lay off plan. Officialy you are communicating on your willingness to keep everybody in, but the level of retention bonus/salary plan will ensure that the FTE are optmized by having people leaving by themselves.
The acquirer would potentially need to retain valuable employees who have the “know-how” of the business to continue adding value and growth to the target company. A compensation plan must be elaborated during the due diligence to determine the salaries for the current employees and the new compensation with new schemes to solve any salary differences in case the acquirer would like to keep some of the more experienced employees in the team.
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