Once a merger or acquisition takes place between two sales organizations, the first major hurdle is the harmonization of compensation strategies. As both organizations come to the table with different compensation plans, choosing the right one is often a significant challenge that puts a strain on the leadership and sales force.
Strategic Alignment of Sales Compensation Strategies
Organizations formulate compensation strategies after intense brainstorming sessions that take into account complex internal and external factors. Those strategies often work best for that organization’s existing setup: size and structure of the sales force, historic performance, business objectives and priorities, etc.
When two organizations merge, they plan to achieve specific business goals, such as increasing the market share or increasing profitability. These goals translate into actions: expanding the product portfolio by acquiring new products or penetrating deeper into the market by acquiring the customer base. In order to achieve these objectives, the company needs a uniform compensation strategy for all reps. During or immediately after an M&A, sales operations must work together with finance, HR, and other stakeholders to harmonize the compensation strategy and plan.
Strategic harmonization of compensation strategies has a number of benefits:
- Reduced complexity in compensation plan design
- Reduced administrative costs
- Improved sales performance and goal achievement
- Increased ability to manage changes in the compensation plans.
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How to Choose the Right Strategy
After a merger, the organization can select either one of the two compensation strategies (merged organization or merging organization) or create a new strategy based on the existing ones. Whichever option you adopt, there are many parameters to consider to make strategy harmonization successful.
Here is an overview of the options and what to consider when making the choice:
Successful Strategy Harmonization After M&A
Here is how one of our clients managed to overcome the challenges of strategy harmonization. A large organization in the logistics space decided to design a new compensation strategy after an M&A. The new compensation plan changed the way reps were paid and the way payments were calculated. Hence, the organization was facing significant differences in the commission payout. The client also had to set up accurate matrices for calculating commissions for the newly inducted salesforce.
In order to smoothen the transition and also come up with accurate matrices, the client decided to keep a six-month transition window between the old and the new plan. During this period, commissions were paid based on a rep’s past performance by overriding the commissions calculated by the system. However, the commissions calculated in the system were used to setup matrices that could be used once the transition period was over. This reduced any drastic variations in commissions and helped the sales force make a smooth transition to the new compensation plan.
Read our customer success stories to find out more.
Communication Is Key
After deciding on the best strategy to achieve the M&A goals, it’s time to communicate the strategy to the field. In order to reduce uncertainty, provide reps with a training program that helps them get comfortable with the new system. A change in compensation is likely to invoke resistance to change. Sales Ops should be ready to answer all questions and concerns.
Here are a few best practices that our clients who have gone through M&As followed:
- Create documentation around the new compensation plan and make it available to the sales reps well in advance. This helps them absorb changes quicker.
- Provide exhaustive training to reps and support them in understanding the new system.
- Start a helpdesk to answer specific queries from reps.
- Create an FAQ document to answer frequent queries.
Harmonizing sales strategies is like choosing between two rights. Often this is a difficult choice to make and it is advisable to seek help from sales operations experts with M&A experience. They can provide helpful insights on benefits and risks of a certain strategy and can enable you to go through the change faster and with better results.