Merging companies usually means merging sales departments, too. Sales leaders call on the sales compensation design team to create new plans for NewCo, the combined entities formed by the merger.
Senior management wants sales compensation designers to create a new sales compensation program that drives the strategy of the merged companies — and they want it done quickly and decisively. Yet, legacy companies need to continue producing ongoing sales — both sides of the merger have customers and assigned sellers — often successfully accomplishing their pre-merger sales goals.
However, the success of NewCo depends on the successful integration of these two sales teams. This involves selling what’s been sold in the past, frequently selling some combination of the merged companies’ products and, in exceptional cases, selling a new product configuration made possible by the merger.
So, how do you solve for these competing interests?
Action Step 1: Identify Current Practices, Confirm New Sales Strategies
Setting the foundation for a successful NewCo sales compensation plan begins before the merger closes. Start due diligence by understanding the legacy sales compensation practices of both organizations. This investigation includes organization, job and current sales compensation practices. Inventory the roles and their key responsibilities. This effort provides the basis for NewCo sales compensation planning.
Create a side-by-side comparison of the legacy sales compensation plans for each role. Summarize the similarities and differences for each pay element: compensation levels, target quotas, leverage, mix, mechanics, performance periods, sales crediting and payment periods. This process helps uncover the stark challenges of two assuredly different pay programs.
Often, the two merging entities will have different pay and performance philosophies (e.g., Company A, 50th percentile and Company B, 75th percentile of the market). Or, the two companies may have different pay mix practices (Company A, 70/30 and Company B, 50/50). Understanding these differences informs design stakeholders of the potential impact on sellers when evaluating a proposed new plan.
Next, confirm the sales strategies and job roles planned for NewCo. Clearly defined roles and rules of engagement are core to ensuring plans drive the right behavior. This includes understanding future-state customers, products and sales processes.
Finally, NewCo’s rollout timing will drive sales compensation plan implementation. Most organizations launch the NewCo sales compensation program concurrently with the new sales structure. Depending on the effective date and performance periods of the legacy compensation plans, NewCo leadership can determine the best approach to bridge from the legacy plans to the new plans. If the new plans cannot be adopted immediately, several bridge options exist. One approach is to extend the legacy sales compensation plan for a transition period. Or, introduce a short-term integration incentive plan that drives collaboration and sales focus during the change.
Action Step 2: Define NewCo’s Sales Compensation Principles; Design New Plans
After confirming NewCo’s future-state strategy and job roles, design the new pay plans. Legacy sales compensation practices could plague and hinder the goals of the new organization. It’s not uncommon for NewCo’s management to face significant resistance to any change affecting either legacy sales team. Rather than trying to “find the best sales compensation parts” from both companies, scrap the existing plans and start from scratch.
Begin by defining NewCo’s sales compensation principles, which will drive alignment across sales compensation stakeholders and streamline the design process. Ensure the principles address these key elements:
- Management philosophy: Confirm the “true north” management model for NewCo. Create reward programs that serve leadership’s narrative, whether focusing on individual performance, teamwork, results, shareholders or customers or some combination.
- Pay-for-performance philosophy: Define how NewCo will pay as compared to market practices and how much differentiation there should be between high and low performers. The pay-for-performance philosophy frames the plan structure and mechanics used in the plans.
- Guiding practices: Develop guiding practices for designers to follow. These practices might include aligning to the sales strategy and job roles, creating motivational plans that are market competitive, paying for persuasion and influence, and designing consistent and simple plans that are easy to administer.
The sales compensation design process provides a unique opportunity to drive consensus on NewCo’s sales strategy and job roles. Identify the performance measures and mechanics that will best support that strategy and those roles. It is also the time to address the sales compensation challenges uncovered in the current state review. Sales compensation designers should:
- Develop eligibility criteria for what roles should be on sales compensation plans.
- Set target total compensation levels aligned to NewCo’s pay philosophy.
- Develop a pay mix framework based on level of persuasion.
- Identify measures that drive desired job role behavior.
Cost-model the new plans. Understand the overall aggregate cost of the plans. Evaluate the positive and negative impact the new plans will have on incumbents. Variations to current practices will help define the program transition strategy. Take this opportunity to adjust pay levels and pay mix to align with the NewCo pay-and-performance philosophy. Work closely with NewCo HR and legal teams to make sure these adjustments fall within company and regulatory requirements. Depending on the degree of change, management can use a transition plan to help incumbents accommodate NewCo’s desired target total compensation levels and pay mix ratios.
Action Step 3: Implement New Plans, Ensure Adoption
After designing and costing the plans, the real work begins. Moving incumbents from their legacy sales compensation plan to the NewCo sales compensation program can be complex, time consuming, emotionally taxing, and yet offer an exceptional leadership opportunity to define the destiny of the NewCo sales team. Regardless, sales team integration is a time of great change and unease for incumbents and requires careful planning and sequencing of NewCo rollout activities.
As shown in the figure, communicate the NewCo strategy, product portfolio and coverage model first, followed by incumbent level conversations about their job role and territory. Once incumbents understand the strategy and their role in executing it, communicate the sales compensation plans and quotas.
A detailed communications plan helps drive successful implementation and adoption. The plan should outline the key communication events, messenger, audience and materials required. Examples of supporting material include:
- Manager presentations: For each unique plan design, create a presentation to outline the sales strategy and objectives, sales compensation design objectives, key elements of the sales compensation plan and the differences between the legacy plan and new plan. The communication document should begin with the incumbent’s own legacy practices, explaining how the new plans differ from the old practices.
- Plan documents: Provide the details of the plan, including the measures, weights, and mechanics and payout tables for each unique plan design. Managers can review the plan document with each incumbent.
Integrations are an exciting time as two companies come together to better position themselves for growth. While the expected synergies, product portfolio and organizational design are critical elements to position NewCo for growth, the sales compensation plan is an important lever to drive results. Follow these three actions steps to change sales compensation practices to better position NewCo for growth.
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