Reward Strategies for M&As + Internal Start-Ups

There are situations when an organization wishes to spin off a portion of itself into a stand-alone entity. The new entity can be completely separate or can remain a part of the parent but allowed to operate independently. When the newly created entity was a part of a larger organization there will likely be pressure to conform the systems used to those that are in place in the parent entity. Whether or not this is appropriate will depend a great deal on the compatibility between the two organizations.

A lesson learned by those who benchmark HR strategies is that what worked well in one context may be a disaster in a different context. Saturn was created with a culture and with systems that differed from those at General Motors. It was never fully integrated and the parent was unable to learn from the start-up because of the major differences in culture. Saturn was not allowed to be the type of organization it was created as, even though the reason for its creation was to experiment with alternative ways of doing business.

Palo Alto Research Center (PARC) was a part of Xerox, treated much like Bell Labs was by AT&T. It was to be free to invent, unencumbered by the parent culture. It did invent… brilliantly. But the creations became huge money makers for other organizations because Xerox could not learn from its creation or recognize the potential of the inventions and capitalize on them.

By developing strategies and programs that define, measure and reward the kind of performance the organization needs it may be possible to motivate people in spin-offs or start-ups to ensure their creator benefits from their results. For example, the organization can offer significant equity in the parent and/or create incentive programs that are at least partially dependent on organization-wide results. These initiatives would make it more likely that those in the new entity would be concerned about their efforts positively impacting the parent/creator. There still could be a different culture, that supported innovation, but aligning rewards with results that benefitted the parent/creator could help to make it clear that there were rewards for turning innovation into commercial results.
An excerpt from:“Effective Rewards Strategies For Mergers, Acquisitions & Joint Ventures/Alliances” by Robert J. Greene, PhD
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