According to McKinsey & Co., 52% of employees admit feeling undervalued by their managers – which also means that they are at risk of looking for employment elsewhere.
While it seems that every business out there is struggling to find and retain key employees, this can be especially risky for business owners who are looking to transition out of their business – as we’ve been discussing in recent articles (See “Your Key Employees Are Probably Even More Important than You Realize” and “Creating Workplace FOMO to Retain Key Employees”).
“This current level of employee frustration underscores how critical it is that employers make appreciation foundational to what they do and practice it regularly,” writes the author of a recent Forbes article “How Business Leaders Can Show Appreciation During The Great Resignation.” As we talked about in the last article in our series on employee retention strategies for transitioning business owners, fostering a strong company culture, providing growth opportunities, and regularly recognizing key employees’ contributions are key.
But of course, financial compensation is also something that you should be considering, and there are a number of monetary retention strategies that might work for your employees and situation. Let’s take a look.
Monetary Employee Retention Strategies
Your key employees need to be sufficiently “compensated” prior to and during the transfer of the business. Here are some financial retention strategies that may provide an incentive for them to stay before and after the sale:
- Higher Salaries.
- Stock Options: Employees are given a right (but not an obligation) to buy company stock at a specified strike price on or before a specified date.
- Deferred Compensation: Additional employee compensation is paid at the time you sell the business or they retire.
- Performance Bonus Plans: Compensation paid annually that is tied to the achievement of company, department and individual goals.
- Retirement Packages: Compensation paid out upon retirement which can include healthcare benefits for the employee and dependent family members.
- Insurance: May include life, disability, and long-term care insurance coverage that may provide liquidity and will help protect their family members should something happen to them.
- Special Perks: May include the use of private cars, private jets, travel accommodations, club memberships, etc.
- Stay Bonuses: A bonus that is partially paid at the time of the business sale with the balance paid after a specified period of time, such as six months or a year, as long as the employee continues to stay and work for the buyer.
- Phantom Stock: Cash that is paid upon the sale of the business that is usually based on a percentage of the total transaction value as if the employee owned stock.
Early planning is critical. These types of agreements can be complicated and need to be considered carefully as part of your overall exit strategy. Of course selecting key employee retention strategies will be specific to your employees’ needs and wants, your company, and your industry but we hope this outline will serve as a guide to get you started.
As always, be sure to consult your legal and financial advisors to craft the best employee retention strategies for your business.
Planning for your business sale is a process, not an event, and you need to start well in advance in order to maximize business value and ensure a smooth transition. Key employee retention is just one of the many steps you need to take to secure their future and yours.
We will discuss all of these options and more during our upcoming timely webinar:
Thu, May 19, 2022 12:00 PM - 1:15 PM EDT
Please join Greg Farland, CFP® AIF® CExP™, CEO of Alliance Private Wealth, and Jane Johnson, CPA, CM&AA, CBEC™, President of Business Transition Academy, as we discuss:
- How to determine who in your organization is critical to your operation
- Non-monetary employee incentives
- Monetary employee incentives and how they may be impacted by your eventual exit:
- Performance Bonuses
- Profit Sharing
- Phantom Stock
- Stay Bonuses
- Management Buyout
- Employee Stock Ownership Plans
- Life Insurance Retirement Plans
- Deferred compensation plans
- Considerations when you are choosing incentives
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