Every business owner understands and appreciates the value of key employees. They have skills and personalities that are hard to match. They are also motivated — unlike any other employee — they thrive on the success of your business, much like an owner would. Because these top employees may be well known in your industry, you have likely compensated them accordingly.
But, did you know these key employees may also be the key to a successful business ownership transition? When your business is being transitioned to the next family generation or even a third-party buyer, it is vital to entice talented and devoted employees to stay the course. After all, they are partially responsible for the business’s success.
First, you need to understand a transition in management and ownership can be a stressful and uncertain time for employees. If your employees are disengaged or quitting abruptly, this can affect your sale price or sink the deal. If the sale still completes, employees may still be worried about their future. Key employees who are loyal to the business can provide the existing staff a sense of stability and direction while affording the new owners time to get familiar with the intricacies of the business.
While it may seem like a sound plan to have key personnel around for years to come, initially, try to build in commitments that cover your transition period. You may consider bonuses, incentives, and goals that center around a successful transition. A well-designed incentive plan generally has four parts: 1. Achievable benchmarks — These can be financial or performance, and individually or team attained. 2. Reward potential — These should be enough to entice key personnel and be exclusive to a small group. 3. Deferred benefit — This is the retention feature. “Golden handcuffs” might seem like an insensitive term, but the reality is, you need key employees to stay for a period of time to help ensure the success of the deal or the future of the business once you have left. 4. Clear communication — Keep everything transparent by having written summaries for key employees. Make sure they know the motivation behind the offer and what is expected of them.
The actual incentive plan can take many forms. Cash-based bonuses are probably the easiest to manage; however, depending on your business, you may consider nonqualified deferred compensation plans, supplemental executive retirement plans, or restricted executive bonus plans. If a group of key employees may potentially be your successors someday, you may consider a stock-based incentive plan or employee stock ownership plan. When considering these types of plans, an expert in executive compensation may be an essential part of your exit planning team.
The reality is that the key employees on your management team should be able to run the business without you, and without that integral personnel, your company may not attain the maximum value you desire. Having a quality staff of engaged and talented employees will likely create value that prospective buyers will find attractive.