Monday, October 19, 2015

You don’t know what you don’t know

Don’t assume you have to give away a piece of your business to attract a great employee 

How can you recruit, retain and reward outstanding employees
without giving away stock? Many times a key executive you are recruiting or who has performed very well for you wants to be a partner. They want ownership, or at least they think they do. How many owners have thought to ask the question: Why? You may think the answer is obvious – but you are thinking with your brain, with your experiences and motivations. The obvious answer to you may be totally different for them. Some possibilities might include: 

1: They want more money (the most commonly assumed answer) 
2: They want recognition for all the blood, sweat and tears they put into the business. 
3: They want respect from the other employees. 
4: They want more involvement in decision-making. 
5: Their spouse has been telling them for years they deserve more. 
6: They want the title or a bigger office. 

If you want to know what they want, ask them the question directly. Most owners don’t. The answer to that may be fear. So what are you, the business owner, afraid of? 
1: Giving up control.  
2: Giving up control. 
3: Giving up control. 
 4: Not usually giving your person more money (if they really deserve it). 

So what does the average entrepreneur owner do? Choose one of the following missed opportunities: 
1: They don’t hire the dynamo who could triple the bottom line. 
2: They tell the executive “you aren’t quite ready yet” but give them no clear, measurable performance targets for getting there. 
3: They lose that key person to a competitor. Profits shrink, and it costs cash and your time to replace them for someone who turns out to be not as good (but for whom you paid more). 
4: You give them a piece of the pie, but no authority to do anything. They get frustrated and leave. You don’t get it. You gave them what they wanted – or did you? 

Does any of this sound familiar? Has this happened to you not once, twice, but several times? You are either so depressed by now you don’t want to read any more, you really don’t care or you have figured it out and have already solved the issue. 

Here’s my three-step solution: 
1: Have you determined if there’s a key person you need to recruit, retain or reward? Look at your motivation. Are they driving profits? Do they have skills that would be very difficult to replace? Are they a leader? Or have they just been there a long time? Are they a “good guy”? 

2: Has the employee approached you? You need to determine their motivation. Ask questions. Why do they want a piece of the pie? Do they truly understand the risks of being an owner? Do they have the capital or credit to buy in? Do they deserve something more? 

3: Determine the best course of action. Can you give them a new title or bigger office? Will a bonus or raise satisfy them? Would “phantom stock” accomplish the same goal? Are you truly willing to give up some control? Then perhaps a cash or installment buy-out is the solution. If it is, make sure you have a well-thought-out, funded buy-sell agreement in place ahead of time. It could save a lot of money, time and agony down the road. 

Or what if there was a way to give a benefit to one or more people without ERISA discrimination rules? Make it like “golden hand-cuffs” so if they get approached by another company they would really have to think twice because the benefit might not be vested. Make it so the benefit is tax-deductible when paid out. Make it so that you could even recoup the cost of the benefit. Maybe there is a better way than giving up equity. 

So how do you recruit, retain and reward key people? Ask questions. Consider options. And take action when called for. 

Courtesy: Mr. Roger Brooks - CEBI Member

Kevin Minton
Chief Executive Boards International

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