Get Smart: How to Reward and Retain Key Employees

I often meet business owners afraid of losing key employees critical to their company’s success. The owners think that offering stock in the company is their silver bullet to entice and reward those employees to stay on. But I’ve seen that turn into a nightmare. It gives away the “keys to the kingdom,” with employees gaining fiduciary rights to examine (and question) an owner’s spending decisions. Typically, it is best to have less owners – not more.

If your ultimate goal is to build the value of your business and transition ownership at some point, then offering to sell or give stock to your employees is NOT in your best interest. Instead, consider smarter incentives for key employees. It’s to your advantage now – and when it comes time to exit your business.

3 Smarter “Golden Handcuffs”

To reward someone, you need to understand what they care about. For your key employees, address their future financial security concerns with incentives like these:

• Supplemental retirement plans are like a private pension plan for an individual, dramatically increasing their retirement savings without the limits placed on 401 (k)s or Social Security.
• Phantom stock plans can be a good option for high-growth companies, offering employees current and future benefits based on the company’s performance, but without the complexity of the management rights that come with even minority stock ownership.
• Stock appreciation rights allow key employees to benefit from stock value increases without having to buy anything outright, with the funds distributed at retirement, sale of the company or upon death.

These are all examples of “non-qualified deferred compensation.” These allow you – the business owner – to pick and choose who gets to participate, who you reward and most importantly, what behavior is being rewarded. This aligns your key employee participants with the future growth and success of the company. It is markedly different than a “qualified plan,” like a 401 (k), profit sharing or pension plan which must be made available to all employees.

Make it Happen

If you want to reward or retain your key employees – and you’ve been considering offering or selling stock as an incentive – I encourage you to think twice. What’s really the best fit for you as a business owner – and for your employees? At Succession Plus US, we specialize in consulting on, designing and implementing alternative plans to reward your key employees that do not require you to give up any of the current ownership or control you enjoy over your company.

Mark Dorman

President & Managing Director of Succession Plus US

CFBS, CEPA, AIF, ChFC

Mark Dorman is recognized as an industry leader for his work with small and mid-sized businesses. A Certified Exit Planner and Certified Family Business Specialist, he has counseled more than 100 privately held businesses.

In a career spanning 35+ years, Mark has purchased, founded, and exited businesses of his own. He published numerous e-books on exit planning and hosts the popular Finish Big podcast.

Mark was president of Legacy Business Advisors before establishing Succession Plus US.