Two puzzle piecesIdentifying and retaining key employees will reduce your business risk and increase sustainability, both important for business owners thinking of increasing the value (sellability) of their businesses.

You can begin by evaluating your candidate key employees against these criteria:

  • What direct and significant impact does (or can) this employee have on the value of the business?
  • What combination of skills and experience does this employee have that would be very difficult to replace?
  • How will this employee participate in a meaningful way in the strategic future of the company?
Loss of employees who rate highly against these criteria can (and will likely) result in financial loss and significantly impact your business’s growth and value.

It is likely that you have emotional bonds with certain individuals who you often interact with or who have been with you for a long time.  Don’t be blind to your own erroneous bents in this area.  This does not make them ‘key’, and yes, you may want to be sure to reward them, but lumping them into your group of key employees can have unintended consequences. Motivating and keeping your true key employees can have a significant on your business and its value.

Your key employee incentive plan needs to be focused on:

  • What you want them to achieve:  Define clear business goals.  Examples can include growth in revenue and or profitability, growth in customer base, increased margins or development a new line of products or services within a specific timeframe.  Make sure the goals set are measurable.
  • How you will measure success:  Objectively quantify performance metrics to determine whether the key employees have achieved the goals set.  Examples may include a revenue increase of x%, profitability increase of X%, expenses controlled as X% of gross revenue, or a target number of customers purchasing above a stated threshold in products or services.
  • What is an appropriate financial reward for achievement:  Key employee plans should be funded by increased funds generated from achieving the business goals outlined in their incentive plan.  If the key employees participating in an incentive plan are successful, what is the expected financial upside for the company?  How much of that financial upside is reasonable to share with incentive plan participants?

Identify the right employees as key, and provide clear unambiguous written plans for financially motivating and retaining them, will help your business grow.

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