Employee Incentive Planning
As business owners plan to exit their businesses, they must confront the challenge of incentivizing employees—specifically, management—to stay with the company after they have left. Having a strong, established, and committed management team to take the reins once an owner has exited is becoming more of a prerequisite than a luxury when selling or transferring the business to a third party. There are several reasons why a strong management team is essential to a successful business exit for owners.
- Before they can sell or exit their businesses with financial security, most owners need to grow their companies’ cash flow and transferable value significantly. Without management leading the charge, this can be a monumentally difficult task.
- Few sophisticated buyers will seriously consider acquiring a company without a capable management team that remains with the company after the owner exits.
- More than one-third of business owners plan to sell or transfer their businesses to management, based on The BEI 2016 Business Owner Survey.
- Transferring a business to children is especially risky without key employees who will remain with the new ownership.
The first task in key-employee incentive planning is to identify exactly who your key employees are. Most of your employees do not fit into the key category. Instead, they are motivated by the usual perks of working in a well-run company: a pleasant work environment, a stimulating job, good wages and benefits, and job security.
On the other hand, key employees (who tend to be in management) act and think more like you do. They want more challenges and opportunities. They want to prosper and grow as the company does. In short, they behave like owners. You likely have key positions in your organizational chart, so you must make sure
that the people filling those slots are key employees.