Today, in the Houston area, hiring and retention are very high on the list of business owners’ concerns. I recently attended a breakfast for business owners. They polled us for our #1 concern. Hiring & Retention tied for #1, way ahead of the second most concern from our multiple choice list.
Why? We have one of the tightest labor markets I have experienced in my business career. Newspapers are reporting there are more jobs than qualified people to fill them. So, a big challenge today is:
- Keep the talented performers
- Recruit and retain performers who can quickly move to your talent performance group
How do you do that? The traditional approach is to offer some form of minority equity interest. It seems like a generous gesture to make to key performers to offer them a piece of the ownership pie. Will it get you the response you want? How does the employee respond to your generosity? Will they act more like an owner?
What happens if they decide to leave? How do you unwind their position? What if you hire someone in the future and you want to make a similar award? When do you start diluting what you will get out of the company at a future sale.
Before one goes in that direction, please speak with a qualified employment specialist attorney for specific legal advice that fits your unique situation. Court cases I have read about recently have tended to be less favorable to the owner.
It has been my experience that on the low side, 1-3% of your employee count fall into this special talent pool. They are the ones who contribute to your bottom line or the ones you count on to perform. This tends to be especially true in the lower skilled manufacturing and construction SIC Code companies. That percentage expands as professional skills are required. I have worked with companies in the professional services area where, at times, 20% or more fit these talent definitions, positively impacting results.
To solve that potential pitfall of losing key talent and diluting your equity and control, our firm takes a “phantom stock” approach using a pooled block of capital. This enables the owners to maintain control and create a pain and loss of benefits if the talent leaves early. We encourage the use of non-competition agreements (where applicable) so competitors cannot steal talent away.
An additional benefit of the pooled approach is the strength this adds to the balance sheet. Bankers are happier; they like how this helps the owner better satisfy regulators for ratio tests. This is a simple card we provide for owners to evaluate.
Having the right people on board who are aligned with your vision and direction makes a big difference in results. Recognizing this challenge of tracking results and rewards for the purpose of retaining and rewarding talent, we developed an executive retention module for Profit Picture®.
Profit Picture is a visual intelligence tool we developed internally for guidance and actionable decision making. You are able to illustrate real-time progress being made (as of last night) and with a click of a button, see a projection of the future impact for the talented individual positively impacting desired results. It’s an overlay that sits atop your existing systems so you aren’t learning or installing cumbersome new software. Interested in learning more, visit: www.ProfitPicture.net