Regardless of whether the target company will be an autonomous operation or fully integrated into the parent company, Compensation in the acquiring company has work to do.
Types of Acquisitions:
There is hardly an acquisition where both companies have the same overall compensation system. Compensation professionals must understand the target’s entire system --- cash and non-cash components, job titles, policies (both written and unwritten), special financial agreements, etc. In full integration the target’s employees are moved on to the acquiring company’s system. Sometimes Compensation decides to throw out both companies’ systems and start over, building a single one from scratch.
Even though there is no integration, compensation’s role is to fully understand the details of the target’s system. A complete audit is recommended to insure legal compliance --- including international operations if they exist. Job titles of the target’s management may change to be in sync with the parent company’s titles.
So it goes with traditional acquisitions. In both situations, the acquiring company buys and keeps another complete company --- products, technology, services, back-end support, etc.
But not all acquisitions are like this. Today the technology sector is doing something new: “acqui-hires” and “lift-outs”.
This is the practice of acquiring a company for its talent rather than its products. It’s all the rage in Silicon Valley thanks to the war for technical talent.
Most acqui-hires are start-ups because they’re the easiest. Many are having trouble getting financing and are facing shutdown. Being acqui-hired provides a nice exit strategy and allows the founders to look like they were successful. They may look like traditional acquisitions because the whole company is purchased. But the giveaway is that only key people are kept --- everyone/everything else is discarded.
Yahoo has done quite a bit of acqui-hiring --- 26 since 2012.
A lift-out involves hiring an intact team from a company that works well together and can come up to speed in a new environment with minor disruption. It’s less complex and avoids the headaches of an acqui-hire. Only a specific team of people is hired or “lifted out”. Call it a group hire.
This is easy because it’s voluntary. The team makes the decision. They may believe their current company doesn’t view their product as critical, they feel hamstrung by bureaucracy or they see more synergy with the new company’s products/services.
Regardless of the type of acquisition, retention plans will be needed for key employees. Compensation needs to work closely with top management on this.
Defining key people: That’s pretty easy to do with lift-outs. A specific team has been hired because they are considered key. The real issue here is with acqui-hires and traditional acquisitions.
To determine who is key, look at the impact each person’s departure would have on the business. Then decide how long each person needs to be retained --- 6, 9, 12 months? People --- especially from start-ups --- may not want to stay long in a large company environment so retention plans need to cover the period of time it takes for knowledge transfer to occur.
Plan design: One-size-fits-all retention packages are usually unsuccessful with a diverse group of key employees. Ideally they need to be tailored to insure success.
In most cases money or stock will be the answer. If the desire is to retain some key employees indefinitely, retention plans may mean providing an opportunity to work on special projects, job rotations, focused overseas assignments, etc. Each person’s motivation needs should be considered separately.
Acquisitions are becoming more complex with business becoming more chaotic and competition becoming more intense. It’s more important than ever for Compensation to be involved from the very beginning to insure the right decisions are made. A key component to an acquisition’s success will be measured by how well Compensation performs its responsibility.
Would anyone like to share their acquisition experience?
Jacque Vilet, President of Vilet International, has over 25 years’ experience in Human Resources. In her current role she works with start-ups and multinationals on both domestic and international HR issues including compensation, learning/development, talent acquisition, workforce planning and mergers and acquisitions. Jacque has an M.S. in Psychology and an MBA from Southern Methodist University. She has been a speaker at conferences in the U.S., Asia and Europe. She is also a regular contributor to various HR and talent management publications and conducts frequent webinars.