The Urge to Merge and the Dilemma for Sales

2021 was a record year for global M&A activity, with more than $5 trillion in global volume[1], agreeably a most remarkable rebound from 2020 activity. And while the experts at Morgan Stanley are not expecting a year to surpass that one, we do know another strong year is predicted ahead.

So, what does this mean for sales, and why should sales professionals and partners of the sales organization care? According to a global HBR study 70% to 90% of mergers fail to achieve the expected outcomes of the merger or acquisition, and what we know is that many of those outcomes become the responsibility of the sales organization to execute. It’s really no wonder that the average tenure of a Chief Sales Officer and Chief Revenue Officer is less than 24 months on the job[2] and the exodus of the sales organization is one of the first issues that occur in the early days as the best sales people are often sought out and poached by competitors and others self-select out of their company given the uncertainty of what’s ahead.

How to manage and what to do…although there is no panacea for all the downstream impacts to the sales organization following M&A activity, are some of the early stage mistakes that we have seen and mitigation strategies that work to get you started in the right direction.

M&A - mergers and acquisitions

Communications That Come Too Late

M&A - mergers and acquisitions This is often one of the most challenging aspects to address since the acquiring company is not allowed to communicate with their new acquisition partner until the deal is fully executed, and this happens up to several months following the first public announcement of the deal. Arguably, before that time the internal rumblings of what’s about to occur has already had some level of impact on the company being acquired, and not necessarily the impact the buying company had expected.

The first thing a sales leader must do is to proactively engage in how the due diligence and information gathering is being conducted to ensure the specific information they need is being gathered. The moment the organization has a green light to access the information that has been gathered, the team can go in and quickly identify potential risks and the sales leader can communicate a message that resonates and makes sense. At this point we are assuming that the sales leader will want to evaluate the team and good team players will be asked to stay. The primary focus at this point may be to “stop the bleeding” and build a bridge as quickly as possible to the right stakeholders of the acquired company. Something overlooked and of upmost importance is the sales organization structure down to the individual level and the year-over-year sales performance of the team. Other key information such as tenure and career progression is also key. This data can tell a great story when you look at the sales strategy, the structure of the team, the sales roles and individual performance and tenure. With this information it’s easy to follow that that up with a quick study of each person using public access such as LinkedIn. This provides the sales leader a quick method to assess and evaluate who to connect with quickly, how to communicate with them and what the message needs to be.

M&A - mergers and acquisitions

Sales Role Alignment Assumptions

Two companies may become one on paper, but a purchase or merger means there are now two different sales teams with differing cultures, products, titles, coverage model and go-to-market strategies under one roof. It will take a while to build your culture as a new organization, but there are some things you can do right away to get started on the right path to aligning the team. One of the biggest mistakes we see is coverage model assumptions. There are assumptions that people make when they hear “inside sales rep” or “account manager” at each company, however the nuances across sales roles across companies can be slight or significant. Even slight differences can have a big impact on the skills required for a job, how people are expected to engage with customers, and how much they are paid.

Building a role map that ties together similar roles is the first step to understanding the overall alignment of the teams and what will (and will not) be addressed. Although this seems an easy task at first, there are many different titles, job descriptions, pay levels, incentive plans and sales structures that are used across companies, and this effort should not be underestimated.
Mergers and Acquisitions - M&A Although you’ve got to start with data, the data won’t tell you all that you need to know. Be sure to interview key personnel to gain a very clear understanding of what each role is expected to do today as well as how the job is carried out. This will also give you a starting point to connecting with the team and building advocacy. A role matrix is a guide that can help everyone understand what the role inventory landscape looks like, and this matrix can be used to help leadership make decisions on how to address customers and the market moving ahead. Designing the sales team requires you to have a good understanding of the products and services you are selling and your sales strategy and expected outcomes of the merger (competitive product solutions, cross selling, new customers etc.) A good role matrix gives you one of the foundational pieces to start with. A role matrix includes the title of each role, a brief description of what they do, the key objectives of the role, the pay levels and grade of the job and any other key requirements that could include tenure, education, and special skills. A great role matrix includes the customer segments served, and revenue responsibilities (defined as retention, penetration, or new acquisition revenue).

Customer segments and revenue responsibilities are often overlooked in role mapping, and yet its extremely important as you think about how people will be paid including pay levels, base salary, and their incentive compensation opportunity. Once you have a role matrix for each organization, and your sales outcomes are clear, it’s time to align the roles. Roles are validated, and where they may be different, and where there are nuances it’s time to challenge the status quo and understand where consolidation makes sense. Using good change management that includes the engagement of players from both companies goes a long way to making this happen in a way that is productive and exciting. This takes time but at the end of the day you can congratulate yourself for creating a baseline sales role inventory that can be used to build a coverage model that is aligned to your customer segments, is designed to support your sales strategy and will be well understood by the entire sales team.

M&A - mergers and acquisitions

Pay Level Differences

Mergers & Acquisitions - M&A The biggest issue that tends to come out of role alignment is pay levels across the companies. This requires some level of investigation to first seek to understand why this has occurred and then you can understand what you need to do to address any pay disparity where (and if) it might exist. I remember working on a global acquisition integration where we found massive pay differences across most of the management roles that existed only in the United States. Upon close examination of the pay levels, it was discovered in this privately held company that around the same time the company had announced it was going to prepare itself for a sale, most of the management team received extremely large pay increases. So big that the much of the pay across the sales organization was outside of any competitive market pay levels. In that situation, the company did not need to bring the rest of the organization up to those pay levels, and it did choose to bravely recalibrate pay to levels to something that made sense. In the end, very few people actually left the organization as a result, and the company was able to keep its high performers by rolling out a new incentive plan that was well received (more on that later).

That’s an extreme scenario, so let’s talk about what we see in most cases. Typically we see pay disparity when roles are assumed to be similar, but in reality they are not. The role mapping process will reveal the key differences, and this can be used internally to help address change management issues. Sometimes, we do find that one company or the other may pay less than market pay, or may not pay as competitively as the other company, and that’s when the parent company needs to have a clear pay philosophy. Do they want to pay at market value, just below market and offer other tangible and non-tangible employee value, or do they want to pay competitive to their peers? Once that is clear, the pay levels need to be evaluated in a logical fashion. Base pay is looked at separately from incentive compensation pay and together that is the total pay, which is referred to as TTC or Total Target Compensation (including both base and incentive compensation pay). Comparing the total target compensation (what the role should make) to the actual performance levels across each company (what people earned) tells you the rest of the story. Is the team that is earning more pay performing at a higher level than the other company? Are there certain requirements that differ greatly such as experience, education or specialized certifications? If the answer is yes to any of these questions (and those aren’t all the questions) it could be that you don’t have pay disparity. The situation could be performance or quota setting issues, and with job requirement differences, this may also directly relate to pay. Be sure to look at what the data is telling you before determining if you have true pay disparity across sales roles. It starts with the data, and that not only includes performance data, but a clear understanding of the products and services sold, the sales cycle, and revenue type in order to make a good comparison and ultimately the best decision for your team. If you do find there is a pay disparity that needs to be addressed, there are different methods to address that. If pay increases are going to take place, understand where you have tolerance to increase incentive based on the role definition, and where you need to address base pay levels. Also, don’t forego looking at individual performance. Another path you can take is to increase base pay for high performers as your starting point using objective data to inform your decision. This method includes the implementation of one-off pay increases as applicable for the top 10 percent (or 90th percentile) of the sales organization. Although it seems daunting at the time, this is the perfect time for HR to partner with Sales to create a new pay matrix of base pay and incentive across roles and calibrate this to career progression and opportunities that ultimately can be shared with the team.

If you do find there is a pay disparity that needs to be addressed, and pay needs to be increased, we recommend that you increase the pay based on incentive opportunity rather than incur a big expense by increasing pay across all individuals in a particular role. Another path you can take is to increase base pay for high performers as your starting point using objective data to inform your decision. This method includes the implementation of one-off pay increases as applicable for the top 10 percent (or 90th percentile) of the sales organization. Although it seems daunting at the time, this is the perfect time for HR to partner with Sales to create a new pay matrix of base pay and incentive across roles and calibrate this to career progression and opportunities that ultimately can be shared with the team.

M&A - mergers and acquisitions

Incentive Compensation Challenges

A great sales incentive compensation plan should be easy to understand, motivational, achievable, and it can drive team productivity. That said, the best plan in the world won’t get you anywhere if the underlying enablement to help your team achieve the results is not in place. Let’s start with just a couple of ideas to get you started, and touch on some key issues that touch upon why the team fails to achieve their outcomes and earn their incentive pay.

Pay Mix: This is the percentage of base pay to incentive compensation within the plan. A good pay plan will align pay mix to the sales role. Traditionally, roles that are responsible for managing existing business and retaining business have less “pay at risk” (greater percentage of base pay to incentive) than roles that are expected to go out and gain new business. And as the old saying goes “greater risk, greater reward”, so those with greater incentive opportunity should also have an opportunity to earn more overall than roles with less pay at risk. What should this do? In a competitive job market, evaluate the pay mix and run modeling with more aggressive incentive pay than perhaps you may have done in the past. As long as the incentive is achievable and is aligned with what you want the role to do, this strategy can help mitigate the company’s cost of sales by overpaying low performers and attracting high performers who understand how they can reach those higher payout levels.
Upside Pay: This is the incentive opportunity that is rewarded once the total target compensation (that includes reaching target for incentive) is reached. What you can do to remain competitive is to pay out an even higher rate for these high achievers. How do you do this without impacting your cost of sales? Well, it’s best achieved by what SalesGlobe calls the Reverse Robinhood Principle. That means you pay out the lowest rates for the lowest level of performance, slowly escalating the pay until target levels are reached, and then accelerate the rate even more for high performers. Have your team run scenarios through a cost model they can build. It works… every time!
Enablement: Within the context of a merger, the most common mistake that we see are some outcome assumptions that need to be addressed. Here are two of the top issues we see.

Your customer will adopt your new product and service offering. Whether you are focused on cross selling the core products and services across each company’s existing customers, selling a new bundled offering from both businesses, or something in-between, there is an assumption of adoption that is an expected outcome of the acquisition. This creates big challenges that start with quota allocation and can end with many top performers missing their goals in the first year. Sales targets are missed, and people are not earning their pay. A very bad outcome for everyone. Talk to your customers- the buyers and decision-makers before making this assumption. Find out their needs and evaluate your new customer base. Have meaningful conversations and understand what you can expect over the next three years. One example where this did not take place led to a big failure in the first two years of an acquisition. A market leader in workplace enablement that sold hardware purchased a complementary SaaS company to support a strategy to build recurring revenue streams in lieu of one-time hardware sales. What the company discovered after a disastrous first 18 months of missing sales targets and losing their best salespeople is that the decision to purchase the new SaaS offering was primarily a CAPEX decision. It had nothing to do with the skills of the salesperson, and yet the sales team had been given very aggressive targets for this new offering that were not achievable. Whoops… that was a hard lesson learned. Find out what your customer really needs, what their overall strategy is and build your account plans and value proposition around that.

Your salespeople know how to sell the new product and/or service offering. Ok that’s probably one of the biggest misses we hear about every day, and you may be thinking that this is nothing new. But what should you do? It’s time to change the game. How you choose to enable your people and upskill them needs to change. It’s not about selling products and services anymore. It’s about having meaningful conversations and understanding how your people can provide them with solutions that help them solve their biggest problems. What can your products and services do to help them address their problems? What’s going on in their own industry and how have things changed over the last two years? Leverage technical resources for the technical discussions. Get a team of salespeople that know how to have meaningful conversations that matter to your buyer, solve problems by listening and working with your company and the buyer to develop solutions that will work, and industry experts (not in your business-but in theirs!) and allowing automated and self-serve solutions for your buyers when they want it, and I’ll show you a company that is growing revenue and retaining their customer base. Your playbook needs to change. The future of sales is here and it’s time to get into the new game of sales.

M&A - mergers and acquisitions

There Is No Sales Communications Campaign

Mergers & Acquisitions - M&A It’s not a coincidence that we are beginning and ending with communications. In all my years of consulting, rarely has the overall M&A communications coming from corporate addressed the unique challenges and questions that originate from the sales organization. Salespeople want to know what’s going to happen with their quotas, their role, the incentive compensation plan, if their customers are going to change, what to tell their customers, what they are going to be expected to sell, how they are going to sell it… and that’s just some of the questions that they will ask.

A campaign is a structured cascading plan that has a common theme that threads all the communications together. I recall a couple of themes that stand out in my mind. “Teamwork Makes the Dreamwork”, by John Maxwell. This theme was adopted by a large team of salespeople in the sporting industry. And then there was “Better Together” for a global technology firm making cutting edge technology merging with a software company with an equal reputation in the market. The theme should be simple and easy to understand and align with the sales strategy of the organization. The communications should start early and should include as much information as possible about the future of the sales organization. To build trust across the team, and keep people focused on their daily activities, the biggest mistake in communications that I have seen is when leadership goes “radio silent” when they don’t know the answer to something, or exactly how something is going to shake out. That is the exactly when leadership should be communicating non-stop to the team. Tell them if you don’t have answers yet, give them timelines if you know them, and just keep them in the loop. People tend to understand if you “don’t know”. What they don’t understand if they hear nothing, and that’s when they tend to come to their own conclusions. Empathy goes a long way, but you have to mean it. Salespeople can see right through inauthenticity as they’ve been surrounded by it most of their career. Rarely have a I seen a sales leader who isn’t empathetic during a merger, and many times I’ve seen them express it privately and not in front of the team. Leaders and managers need to be in front of the team. And enable your leader with a cascading communications plan that can be administered and disseminated effectively across the team. Oh- and don’t forget to bring it up to current standards… Short videos preferred over long emails and town hall meetings with an agenda and opportunity to ask questions are still the best ways to communicate to your team. Continuous communication is the hallmark of quantifiable change management results that lead to the outcomes you expect.

And remember, data doesn’t lie. Anytime you can include this in your communications from performance data to customer insights, this goes a long way to help your team understand why change is coming, and what they can do to impact their own success and the success of your team.

[1] M&A Outlook 2022: After a Record Year
[2] The Bridge Group and CSO Insight

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SalesGlobe is a leading sales effectiveness and data-driven creative problem-solving firm. We specialize in helping Global 1000 companies solve their toughest growth challenges and helping them think in new ways to develop more effective solutions in the areas of sales strategy, sales organization, sales process, sales compensation, and quotas. We wrote the books on sales innovation with The Innovative Sale, What Your CEO Needs to Know About Sales Compensation, and Quotas! Design Thinking to Solve Your Biggest Sales Challenge.

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SalesGlobe On-Demand Insights provides relevant, timely, impactful information that informs incentive compensation. For more information contact us at insights@salesglobe.com.