Using Short-Term Incentive Plans to Retain Key Employees during the Transfer of a Business
The Lifetime Stay Bonus
You’ve decided to sell your company to an outside party. For a number of reasons, it is critical to keep your employees on board as you leave.
So, how do you ensure that your key employees will remain at their posts, even as you prepare to leave yours? One short-term incentive plan that can be set up to meet your employee incentive Exit Plan objectives is the Lifetime Stay Bonus. The Lifetime Stay Bonus not only provides recognizable incentives for your key employees to stay on board and help your business through the transition period, but they also provide a level of stability and certainty for your company and its employees to succeed.
In our experience, selling owners typically have three objectives with respect to their key employees:
Of course, the ideal time to begin key employee incentive planning is well before a business transfer occurs. However, even those owners already dancing in the arms of a would-be buyer would do well to begin the planning process. As the old saying goes, “The best time to plant a tree is seventy-five years ago. The second best time is today.” To better understand the importance and process involved with developing Lifetime Stay Bonuses, let's look at the fictional case of John Ewing, owner of Ewing Lubricants, Inc.
John’s problem is typical. As he thinks about how to exit the business, he must give equal thought to discouraging his key employees from doing the same. If a selling owner provides no incentives, management has little motivation to remain employed by a company they did not choose. They will leave. This certainty dictates what you must do for your key employees if you are to leave your business in style.
Understanding the importance of providing key employees with a reason to continue with the new company when the sale or transfer or the company is imminent, part of John Ewing’s exit plan involved installing a Stay Bonus Plan that promised a cash bonus for his key employees. To determine the proper amount of the Stay Bonus, John looked at the following options:
Since John had already “informally” promised his three key managers a total of 10 percent of the anticipated sale price, John and his advisor used this figure as a basis to begin designing the company’s Stay Bonus Plan. In the upcoming Exit Planning Reviews™, we will look at the steps John had to take to create a successful Stay Bonus, as well as the proven tactics John used for communicating the plan to his key employees. If you have any questions about how Stay Bonus Plans apply to your company, please contact us to discuss your particular situation.
Subsequent issues of The Exit Planning Navigator® discuss all aspects of Exit Planning. If you have questions, please contact Kevin Short, Managing Director (email@example.com).