Insights from WTW’s 2024 Pre- and Post-IPO Remuneration Practices pulse survey
Planning an initial public offering (IPO) marks a significant milestone for companies, bringing both opportunities and challenges – particularly in employee pay practices. A recent WTW pulse survey across various sectors sheds light on how compensation strategies evolve before and after an IPO and provides food for thought among companies considering or undergoing this transformative process.
Among the survey findings:
Although most organizations have not yet initiated their IPO process (59%), more than 40% of those companies have started on their IPO journey (Figure 1).
Capital generation remains the primary organizational objective, while strategic positioning and visibility are secondary considerations. Employee compensation remains a critical area of focus, and insights are essential for planning a sustainable future for these organizations and their workforces.
Respondents reported a high percentage of uncertainty regarding IPO plans (Figure 2), reflecting both the dynamic nature of working toward a public listing and the need to keep plans confidential. Once the IPO process is underway, ensuring that all stakeholders are aware of long-term goals can help align efforts and expectations. It is important to include compensation professionals early in the planning discussions, so they can make sure pay and talent issues are considered from the start of the IPO process.
As transformative as the IPO action is to the organization, so too is the transformation of compensation during an IPO event (Figure 3). Talent retention was specifically cited among respondents as a critical concern during an IPO. While going public is seen as a time of great opportunity for organizations, it also can be unsettling for employees. Managing the uncertainty associated with an IPO – including not losing key executives and employees – ensures the stability that public investors and other stakeholders want to see before, during and after an event.
The best, most effective pay programs align with business and talent strategies and reflect an understanding of the internal and external factors that influence strategic compensation recommendations and decisions. A major event like an IPO provides a perfect opportunity for organizations to review their compensation strategy and (re)design their pay programs as needed.
Organizations around the world are facing more complicated talent management challenges than they ever have before. Identifying, recruiting and retaining employees with the most in-demand skills is what creates a sustainable future. Identifying who those employees are and how to pay for them requires timely market data and insights.
Private companies most frequently anticipate changes in retention incentives (63%), bonuses (50%) and base salary increases (38%) post-IPO, according to the survey. Meanwhile, public companies report experiencing different priorities, including “other” changes (40%), performance metrics adjustments (27%) and equal emphasis (20%) on base salary, equity and bonus changes.
This divergence suggests that pre-IPO expectations often differ from post-IPO realities, including the fact that post-IPO companies need to be more conscious of investor and market awareness of major changes in compensation. To help smooth this transition between private and public pay, we recommend that organizations seek timely market data, insights and advice as they navigate the IPO process.
The significantly higher selection rates for retention incentives and stock lockup periods by private companies (63% and 47% respectively, vs. 33% and 13% for public companies) indicates companies responding to the need for public investors to have certainty about the post-IPO management team and companies looking to retain key talent during the transition. Meanwhile, public companies' stronger emphasis on “other” changes (40% vs. 16%) suggests that the IPO process often introduces unanticipated compensation adjustments beyond standard components.
This data underscores the importance of preparing pre-IPO companies for a more complex and potentially different compensation landscape than they might anticipate, while helping them develop holistic strategies that balance financial incentives with other retention mechanisms to navigate the transition successfully.
Most survey respondents indicated they did not offer specific awards throughout the IPO process. If they had not yet been through an IPO, they planned to maintain their existing awards (Figure 5).
This reflects a more conservative approach to employee pay, likely influenced by an increased focus on cost management during an expensive IPO process. It also reflects a focus on long-term alignment, maintaining consistent compensation structures that align employee incentives with post-IPO performance over the longer term.
In our experience, it is important to remain flexible going through an IPO process in order to respond to potential changes required to compensation structures or specific awards that may be needed. This is reflected by the interest shown by survey respondents in potentially modifying compensation structures in anticipation of an IPO event.
The complex organizational transformation that IPOs represent demand strategic clarity and a sophisticated approach to employee compensation and talent management. Based on our pulse survey, we learned more about the critical challenges and opportunities companies encounter during this pivotal phase in an organization’s life cycle.
Specifically, the success of an IPO relies on more than financial metrics alone. Success requires a holistic strategy that aligns with your organization’s broader goals and keeps your most valuable asset – your people – engaged and motivated.
However, it is worth noting that a successful IPO is not an endpoint. Rather, it is a critical milestone that requires strategic planning, comprehensive and long-term roadmaps, and flexible organizational strategies, which are essential for navigating uncertainties. Adaptive compensation structures that prioritize talent retention and align employee pay with your organization’s objectives will ensure that your pay practices are competitive and effective.
