A Strategic Approach to Navigating Employee Entanglements in Divestitures and Demergers

Divestitures and demergers are complex transformations that require more than just financial and operational restructuring. A successful separation strategy includes plans to effectively manage employee entanglements, including considerations for the interconnected contracts, roles, responsibilities, and compensation structures that link employees between the existing organization (RemainCo) and the newly formed entity (NewCo).

What Are Employee Entanglements?

Employee entanglements occur when workforce responsibilities, reporting lines, compensation structures, or operational dependencies are not fully separable between RemainCo and NewCo. Employee entanglements can create complexity across any deal size. Consider:

• Cross-functional roles: Employees who support multiple business lines may have unclear responsibilities in NewCo or RemainCo.
• Compensation and benefits complexities: During separation, salary structures, incentive plans, equity programs, and benefits must be carefully considered and aligned where possible to keep employees whole.
• Legal and regulatory dependencies: Employees in different jurisdictions may require specific entity structures, corporate sponsorship, visas, or other third-party employment solutions when their employer is changing.
• Retention and operational risks: Either RemainCo or NewCo could lose key talent that supports their organization in the current state. “Stranded work” (unassigned business-critical responsibilities) or “stranded cost” (retaining employees no longer essential to the business) can increase separation challenges.

Failure to proactively address entanglements can lead to employee attrition, business disruption, financial misalignment, and regulatory non-compliance, jeopardizing the success of the transition.

Key Considerations for Managing Employee Entanglements

1. Lead With Legal and Regulatory Compliance

Divestitures and demergers often involve employees working across multiple jurisdictions, each with distinct legal requirements. Organizations must:

• Ensure compliance with local employment laws: Review contracts, severance obligations, and work council requirements in each geography.
• Evaluate legal entity needs: Determine whether NewCo requires new legal entities or if third-party Employer of Record (EoR) or Professional Employer Organization (PEO) solutions can reduce complexity and cost.
• Address cross-border regulatory challenges: Navigate visa sponsorships, tax implications, and payroll compliance.

2. Create a Plan for Change Management and Communications

Employee uncertainty is one of the biggest stressors during workforce transition. Poor communication can lead to change resistance, disengagement, and attrition. A well-managed employee transition should include:

• A structured communication plan to provide employees with clear, consistent, and transparent updates on their roles, benefits, and timelines.
• Aligned messaging from leadership and HR teams to deliver a unified story and address employee concerns proactively.
• An understanding of cultural expectations and implications, especially in cross-border transactions where employment expectations and corporate values may differ.

3. Focus on Talent Retention and Workforce Transition Planning

Divestitures often create talent uncertainty, making it crucial to retain key employees and ensure workforce continuity for both RemainCo and NewCo. When navigating a divestiture, organizations should:

• Identify and secure mission-critical employees early (through retention incentives, where needed) by mapping workforce needs against business objectives.
• Develop structured transition and knowledge transfer plans to prevent gaps in leadership, expertise, or operations.
• Mitigate the risk of stranded work and stranded costs by regular reviews of key business processes, ensuring RemainCo is not left with operational shortfalls due to unexpected gaps in human capital.

4. Ensure Compensation and Total Rewards Alignment

Any misalignment in benefits and compensation structures can create legal or compliance risks, increase the risk of retention challenges, and impact overall company culture. Organizations should aim to:

• Analyze total compensation packages, including salary structures, bonuses, and equity programs, to ensure employees remain whole post-separation.
• Review and harmonize benefits programs and offerings across healthcare, retirement, allowances, and leave policies to prevent employees from losing core benefits, wherever possible.
• Develop an accurate, standalone financial budget that accounts for total rewards transition costs and ensures NewCo has a sustainable compensation and benefits model.

5. Program Management and Day 1 Readiness

Ensuring operational stability on Day 1 requires meticulous planning, execution, and risk management through project planning and governance. An effective program management office will:

• Establish a regular governance cadence and mechanism for tracking workforce transitions, mitigating employee risks, and managing dependencies across the organization.
• Ensure operational continuity for both RemainCo and NewCo by preventing disruptions in HR, payroll, IT, tax, and finance by increasing cross-functional collaboration.
• Capture lessons learned to refine best practices for future organizational changes.

Ready for a Divestiture or Demerger?

CrossCountry Consulting is a trusted advisor and divestiture execution partner with deep expertise in workforce transition planning, program management, and change leadership. Resolve employee entanglements with minimal disruption by navigating workforce separations, ensuring Day 1 operational readiness, transitioning talent, and prioritizing organizational stability. Contact CrossCountry Consulting to get started.