Monthly Archives: April 2013
Change Management After an Acquisition – How to Marry Two Cultures

The other evening we began an interesting conversation around mergers that I want to elaborate on today. Specifically, I want to touch on a few different strategies available when integrating two cultures and the pros and cons associated with each.

Absorption:

This strategy is best used primarily when there is a significant difference in the size of two companies coming together. In an absorption situation the smaller company is brought completely into the fold and made to adopt the cultural norms and values of the larger/parent firm. I think the biggest pro of this strategy is that it doesn’t expend considerable time and resources trying to mesh the norms and values of two (possibly very different) companies. The biggest con is of course that the merger could end in total failure if the culture being forced to adopt the values of the parent company is materially unable to do so without losing core elements of its value to customers (though if this is the case one wonders why a merger would take place to begin with). The more likely negative outcome of the absorption strategy is that turnover ends up rising considerably as employees unable or unwilling to cope with the culture change leave the organization.

Preservation of Independence

Another option is for both merging companies to maintain their independence. While they become one enterprise from a P&L / share price (if publically traded) perspective, in day to day operations both businesses would behave as seperate companies. The biggest advantage of this approach is that the two companies will maintain what makes them both great, and the biggest disadvantage is that by failing to synergize a lot of value is being left on the table.

Marriage of Culture

In this “Best of Both Worlds” approach, both companies look at what works in their organization while also evaluating what the other company does better. This is a great idea in theory since – as is implied by the title – the companies maximize synergies. In practice, however, the time and resources required to do this the right way are seldom available – and even when they are generating buy in from leadership in both organizations can be very difficult. Even if both companies are of a similar size, the ability to do an honest assessment on both sides requires leadership teams from both firms to set aside hubris and look frankly at strengths and weaknesses. This is easier said than done…

Going to wrap it up here, but as always please share your thoughts below.

Categories: Talent Management
“Pay for Points” Grade Structures

Over the weekend I was thinking about comp structures, 1 and I designed what I think is a wonderfully ambitious compensation program.

It’s based around a “pay for points” system. The structure goes:

Midpoint = Job Points * Function Multiplier + Sweetener

The structure isn’t designed at all around the market rate for jobs (for the most part), and is instead almost entirely based on the internal valuation of work. The Function Multiplier is between 100 (Clerical) and 500 (Executive), with each function having its own specific multiplier based on its relative value to the business. The “Sweetener” is a job specific number that is added on to a job if the internal structure isn’t yielding wages competitive enough in the market to attract talent (in which case the job is market priced and the sweetener is added as a supplement to bring the job to p50).

The jobs point system works using the following criteria:

  1. Education / Technical skill required to do the work
  2. Impact the job has on the P&L (from either an earnings or cost savings standpoint)
  3. Human relations skills required to do the job
  4. Span of control
  5. Safety / Working conditions

The factors are weighted using the following ranges (percentage weights were assigned to each factor and then given a range starting and ending at the beginning and ending of the adjacent levels, respectively):

Note: Level 1 / Safety and Working Conditions should have a minimum of 12.5, but I rounded up when typing in the ranges. Just noticed this after I posted.

So if one wanted to grade an HR Manager on this structure they might get:

In the above case the midpoint for the HR Manager would be 425*150+0 = $63,750 and the salary range is +/- 20% of the midpoint

What’s wonderful about this though is that each level actually has ranges. An HR Manager could theoretically be at a midpoint of:

670*150+0 = $100,500

… If the site he or she supported was large enough.

I love this system because it recognizes that there are different levels of work within any given job while also recognizing differences in the value that various functions bring to the organization.

…Of course, this would be a nightmare to manage as it requires analyses of every job in the organization. Additionally, it has lots of subjective elements (what’s the difference between 13 points and 14 points?) and basically ignores the market (instead looking to attract talent with equity stakes – which I didn’t get into here as I’m still thinking about it).

Categories: Compensation