Incorporate compensation in M&A due diligence

The recent surge in merger and acquisition opportunities has resulted in heightened emphasis among companies on ensuring due diligence processes that are both timely and thorough. Teams are being asked to evaluate more prospective acquisition targets, and to do so quickly and flawlessly.

In addition to identifying any major liabilities and potential issues in finance, tax, and legal areas, there is an also an increasing level of focus in terms of corporate strategy, operations and culture.

Being mindful of compensation issues is necessary to retain talent. Here are some ideas of interest:

Make compensation part of due diligence

Compensation items should be included on the due diligence checklist and discussed in the diligence review meetings. Gaining a clear understanding of the compensation processes and details at the company being acquired is critical.

Set goals

Have clear goals in order to be certain of understanding the approach, and make sure there is consistency and alignment with messaging. For example, it may be the goal to create a unified compensation structure for the combined companies within one year after the closing and fully evaluate all the job grades and positions during that time.

Acquisitions are an opportunity for your company to do things you never completed before and it is an ideal time to rethink your overall strategy in terms of competitive compensation. Harmonizing the pay systems of merging companies is a complex and difficult process. And, it creates an opportunity to implement improved systems, which in turn can dramatically affect both the culture of the firms and retention success.


All employees involved with M&A want to know what it means to them in terms of compensation, and it would be in each company’s best interest to immediately address this issue. For example, it is advisable to explain what the compensation plan is in terms of integrating the companies and the timeline.

Even the best-designed plans will fail, and providing authentic communication with all employees will be appreciated and increase management credibility. It’s not good enough for management to say compensation is something being evaluated, or they don’t know yet what changes may be in store. Remember, the goal is to not add to the level of anxiety, which can damage morale and hurt retention.

It’s difficult when combining companies that have vastly different pay structures and perhaps even different compensation philosophies. It is OK to establish a transition period to address the relevant issues and indicate that compensation structures will stay in place for a set period of time to create a unified plan.

Retention bonus plans

One-time retention plans are a common facet of any acquisition. Typically, the most effective retention strategies involve senior leadership of the target company. Of equal importance, the acquiring company may want to consider similar retention strategies for key employees who will be involved in the post-deal integration and management.


Elliot N. Dinkin is the president and CEO of Cowden Associates Inc. Elliot’s strategic approach assists clients in the development of a total compensation benefit package that controls costs, adds efficiencies and enables the employer to attract, retain, motivate and keep employees engaged while meeting company objectives. Through his guidance, employers become more competitive by creating total compensation packages verses viewing benefits in silos.