Spinoff Company Case Study

Our client wanted to establish its own cultural identity after separating from its parent company through a spinoff. In becoming an independent company focused on its target industry, sizeable change was needed to align its culture and ways of operating with its vision for the future. The total rewards framework was identified as a key area supporting cultural transformation. The spin-off presented an opportunity to retain the best practices of the parent company while developing a more tailored philosophy and approach to rewards. Our assignment was to structure a compensation design and governance approach that fit the spinoff company’s future.

The client needed to reshape its entire pay structure both quantitatively and qualitatively, which included redefining its competitive talent market, pay mix, incentive structures, and more. Additionally, a new management team was created from a mix of highly experienced external recruits and internal talent from the business segment. There was a significant gap in long-term incentive (LTI) compensation between internally developed top leaders and market pay rates for their new roles and between internal and external hires. The company needed to address these gaps responsibly while fostering a sense of unity among its employees. With much to accomplish, the client was faced with determining how much of the parent company’s legacy and practices it wanted to retain or change in its pay programs.

Semler Brossy built a work plan to develop a sound foundation from which the rest would follow by establishing a total rewards philosophy, defining the competitive market, benchmarking compensation, developing strategic plan designs, and creating sound policies. The client determined that the compensation programs should be redesigned from scratch to meet strategic and market competitive objectives (e.g., Improving operating margins, focusing on efficient investment in product innovation, remixing LTI awards to emphasize growth and retention) while the compensation policies and benefits could evolve over time.

The transformation process involved intensive change management, considering the spin occurred early in the fiscal year, leaving limited time for implementation. At each step along the way, careful decisions were made around the magnitude of change and how important those changes were to support the cultural transformation and talent needs of the business. Semler Brossy meticulously reviewed investor materials and presentations from the spin roadshow, aligning the pay strategy with the company’s commitments on growth, margins, and identity post-spin. The firm engaged in extensive conversations with the CHRO, CEO, and CFO to ensure alignment on the new direction and guided deliberate decisions around where to deviate from market norms when it supported the business strategy, including choices like using the same metric in the short- and long-term incentive plans and selecting a less commonly used performance metric.

Additionally, Semler Brossy helped the client introduce an equity spin-off award to engage and retain employees during the crucial spin period. This one-time equity grant aimed to create a sense of team spirit and foster an inclusive environment, recognizing several thousand employees as “founders” of the new company.

Post-spin, the client experienced early performance improvements and remarkable revenue growth. Tweaks were made to incentive designs based on experience developed in the first year. Investments in long-term incentives were made lower in the organization after conducting a deep dive on pay strategy at those levels. Semler Brossy’s support extended beyond compensation restructuring, influencing the client’s approach to committee presentations on succession planning and management development for its post-spin leadership.

The seasoned Compensation Committee was guided through the transition, ensuring a smooth process and instilling confidence in the management team through content, process, and governance checklists. By the end, the client was positioned for sustained success with a total rewards framework aligned with its identity and strategic objectives.