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More than 50% of the strategies we do with our Clients focuses on enhancing the value of the business.  One of the keys to business value enhancement is making sure we retain the key people in our company.

We believe that developing programs that encourage our key people to stay is very important as we age and might want to change our   involvement in the business.  A good key employee retention program consists of these 5 keys: 

  • Create a work environment where your key people feel valued and are encouraged to have a real impact on the business.
  • Develop a compensation system that rewards your key people   for great work.
  • Establish a retirement program that goes above and beyond your regular 401(k) program that encourages your key people to stay with the company for a period of years.
  • Share company performance numbers with your key people.
  • Put a stay bonus in place so your key people will be part of any transition or disaster-planning package you may have.

Create a work environment where your people feel valued

Compensation studies show that once an employee feels he or she is  being paid enough, the importance of salary for a particular person goes way down the list.  The things that show up consistently as being very high on the list are the soft, or intangible, things in the job.

You will want to make sure that your people have input into how the business is run and in which direction the business needs to move for success.  Having a concise and effective mission and vision statement will help make sure you and your managers stay on the same page. 

The key to having a good work environment is to show respect to your managers.  You should treat them as if they were the most valued Customers you have.  And, in many respects, they are.

Develop a compensation system where managers are paid for producing results

If your company does well financially, so should your managers.  Having a key performance indicator measurement system as well as understanding the drivers for those key performance indicators is one of the keys for measuring results that are produced.

We suggest that part of the variable compensation paid to your key mangers is paid in current compensation and part is paid in deferred compensation.  Both are important in rewarding and retaining your key people.

Establish a retirement program that goes beyond your 401(k) plan

There is a reason that public companies give stock options to their key people.  That reason is to make it difficult financially to move to a new job.  You can do the same in your company by having part of the annual performance bonus go into a deferred compensation system.

Your deferred compensation program should have a vesting schedule so your managers always have a significant amount of money at risk.  This might not keep your key people from leaving your company, but it will slow them down and make them think before they move on.

Share performance numbers with your key people

If you expect your key people to help you make your company more successful, it’s important to tell them how well the company is doing. 

There is always a fear factor when we talk to owners about sharing their numbers with anyone.  In most cases, this fear is completely unfounded.  There are often times your managers think your company is doing much better than it actually is.  Sharing numbers with key mangers allows you to effectively institute a key performance and driver program in your company.

Put a stay bonus system in place

As you get older, your key people may be thinking or asking the question “what happens if you sell the company, are disabled or die?”   When a business owner becomes 50 years old, there is always the risk that one of those three things can happen.

When a triggering event such as those listed above happens, you want to make sure your key people stay with the company for a period of time.  Having a stay bonus program in place where your key managers will be paid a certain amount of money for helping the company move through a transition is one of the most important things you can do to maintain the value of your company.

I’m curious as to what your thoughts are about retaining key people in your company.

Josh Patrick  

Securities and Investment Advisory Services offered through NFP Securities, Inc. (NFPSI), Member FINRA/SIPC. Stage 2 Planning Partners and NFPSI are not affiliated.

This article is published for residents of the United States only.  Registered Representatives and Investment Adviser Representatives of NFP Securities, Inc. may only conduct business with residents of the states and jurisdictions in which they are properly registered.  Therefore, a response to a request for information may be delayed.  Not all of the products and services referenced on this site are available in every state and through every representative or advisor listed.

Topics: Key Employee Retention, for business owners, business exit planning, passive ownership, Blueprints for Tomorrow

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