How to Handle Sales Performance After a Merger or Acquisition

By David J. Cocks, CEO

When companies go into a merger or acquisition, there is often a tendency to leave compensation alone – the feeling is that the ownership change will be traumatic enough without changing the commission structure too.

However, this leads to problems. Invariably, representatives compare plans. There are bound to be differences: different commission levels, base salaries, incentives, perquisites, benefits and more.

No matter how generous the plans are, representatives are going to feel that "the other guys have a better deal."

One company's reps see that sales associates at the other company receive a higher commission, while the other company's reps notice the higher level of administrative support and lead generation the first company provides.

To keep everyone happy, there's a tendency to creep towards a plan that has the best of both – higher commissions and higher levels of support, services and benefits. This can be disastrous.

The longer it goes on, the worse it becomes. Top producers have the leverage to cut better deals for themselves, and resentments build and fester.

Additionally, the longer plans are left alone, the harder it becomes to find a good time to make a change.

Right after a merger or acquisition is the perfect time to rationalize compensation. Creating new compensation plans makes a clear statement of the company's goals and positions everyone to move forward without the baggage of the old arrangements.

Start by asking sales people from both companies what they like and don't like about their compensation structures. You'll get good feedback that will help you design new plans, and you'll also have information about what works and doesn't work that you can use to better manage the combined sales force.

The simple act of asking what they want sends a powerful message to the sales force and is an excellent retention device.

Then you need to decide what value proposition you want to offer the sales force. Can you combine what each company is doing now? If one company has a particularly attractive culture, you may want to transition everyone to that offering. Or it may make sense to start over with something brand new.

You can take this opportunity to rationalize the compensation structures, bringing them into line with what the sales force needs and wants. Maybe some of the services or benefits one of the companies offered are no longer needed. We have actually seen companies pay for an acquisition simply by restructuring compensation.

Don't forget to do a thorough financial analysis of any proposed changes. We saw a merger once where one of the companies offered a very generous commission at high sales levels, which they could afford to do because very few people ever reached that level. The company they merged with had far more high producers, and when management decided to offer that plan to everyone they quickly found themselves in serious trouble.

Of course, you need to take into account the revised cost structure of the new company. You'll be saving money through consolidation and reducing duplicate costs. Those savings can go to the bottom line.

Or you might invest them in your sales force by designing plans that provide higher commissions – which would be highly motivational to the existing sales force and very useful for recruiting.

By taking advantage of a merger or acquisition to revise your compensation plans, you can better meet the needs of the combined sales force and position your company for greater growth in the future. 

BIG Hat, NO Cattle? | Thriving in a Market Downturn

Thriving in a Market Downturn

By David J. Cocks, CEO

Is your business all hat and no cattle? In other words, are you focusing on increasing revenue at the expense of profit?

A lot of business owners focus primarily on top-line revenue growth, even though a business can't be run on revenue alone.

Here are some common misconceptions we see in the market:

Top Producers = Profit

Betting the farm on top producers might leave you without a farm. Big-name sales associates can negotiate high commissions and generous perquisites. Although their volume is impressive, it is not unusual to find companies losing money on their most productive sales associates.

Mergers and Acquisitions = Profit

One of the most popular ways to grow a business is by acquiring or merging with another company. But if the company was not properly valued, efficiencies don't materialize as expected, or compensation plans are not restructured to reflect the combined company's expense structure, the net result can be negative.

Cash Flow = Profit

In smaller companies, we often see owners who pay themselves with what's left over after expenses are covered. Although this helps ensure the company's cash flow, it's not an accurate accounting of profitability. Owners who sell need to pay themselves as if they were regular sales associates – and compensate themselves for the time they spend managing the business.

How Healthy is Your Business?

Even if your revenue is on a steady upward trend, your business may have hidden profitability problems. Now that you've paid your taxes and have all your year-end numbers, it's a good time to do a quick check to make sure your cattle are growing as fast as your hat.

You'll need a few statistics for the past three years to do the assessment:

• Total revenue;
• Total expenses;
• Operating profit;
• Sales representatives ranked by production.

First, look at the trends to make sure both revenue and profit are increasing, and then calculate the percentage increases. If revenue and profit aren't growing at the same rate, that's a red flag.

Now look at expenses. They should be growing at a slower rate than revenue. If not, that's a red flag.

Last, look at sales force production levels for the past couple years. If they're not stable, that's a red flag.

Did You Find Any Red Flags?

If you did, there's still time to make changes. Adjusting compensation plans can help solve some of the toughest profitability problems. We encourage you to discuss any red flags with your accountant, and of course, give us a call to see how we can help.

The bottom line: make sure you don't spend so much time focusing on your big hat that you don't have a place to hang it at the end of the day.