4 Agreements for Retaining and Motivating your Key Employees
A Business’ most valuable assets are generally its key employees. Great employees add outsized value to the bottom line. They are difficult to find and even more difficult to keep. For you to one day retire or sell your business, it must be able to function without you as well as with you.
Key employee retention planning must provide creative ways to “handcuff” employees to your business for 10, 15, 20 years, so your business value is enhanced. Majority of businesses look into 4 types of retention/loyalty programs when it comes to this topic. They can be structured stand alone or in conjunction with each other.
Retention Bonus Plans - Probably the simplest ones to explain and/or establish. It is simply a promise to pay a significant bonus to a key employee if he or she remains with the business for a specified period of time. This bonus can be based on percentage of pay, or any other KPI that the business deems important for its future growth. The bonuses can be accumulated from year to year, or just simply stated as a one number at the end of the period.
Deferred Compensation Plans - More complex than retention plans and typically done with bigger businesses for highly paid employees. It is an agreement with the key employee to put away portion of the salary/bonus in a separate account on an annual basis, to be paid out at a specified date in the future, if the employee remains with the company for a period of time.
Phantom Stock Agreement Plans - These plans are meant to reward the key employees with the participation in revenue of the business as the owner of equity of the company, without actually giving the equity out. The plans can be structured for any period of time, the “phantom” equity is typically allocated based on the KPI parameters achieved on a yearly basis during the period specified in the agreement.
Stock Gifting/Selling Plans - Similar to the phantom stock plans from the standpoint that the desire is to reward the key employee(s) with the revenue share based on the equity ownership of the company. In this case, the equity is actually either sold or gifted to the employee which also makes them a minority owner in the company as well.
For more detailed information, or to simply see which of these might apply to your situation simply schedule a 45-minute discovery call.
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