Workforce development: Keeping key employees loyal
If you subscribe to the theory that happy employees are more productive employees, then your employee compensation and benefit package has to “look after them.” This is especially true for key employees.
If you were to leave your current business to start a new business, whom would you take with you? That’s the question business owners should ask themselves as they begin to identify their key employees.
In this era of labor shortages and poaching, those key or most-valuable employees deserve a little extra consideration when it comes to compensation and benefits. Keeping key employees loyal to the business just happens to be one of six pillars identified in MassMutual’s 2018 Business Owner Perspectives study, and the key to keeping the “keys” is a bit of special tailoring.
If anyone on your staff has earned it, your key employees have. “I think that every business owner would admit that there is somebody in their business that is so key to the business, that has helped him/her grow over time to make it what it is today, and if that person is no longer part of that business, that would cause stress in the business, and the business would probably take two steps back,” notes Tim Powers, president/CEO of MassMutual Wisconsin. “Therefore, I think every owner has to take a really hard look at who are the key people in that business to ensure they are doing what they need to do to retain them.”
In the Business Owner Perspectives study, keeping key employees loyal is viewed as the most important, most top of mind, and most solvable of the core pillars identified, as 79 percent of small business respondents say they either frequently or often think about the issue.
However, a gap lies in what the respondents are offering in terms of benefits, and to whom. In many cases, there appears to be no difference in what is offered to all employees and what is offered to those who are most critical to the success of the business. That’s a mistake.
Not offering additional or specifically tailored benefits to key employees is a good way to lose those key employees. Whether they are valuable assets because of creative genius, relationship-building skills, or sales acumen, holding on to them requires a proactive approach to compensation and benefits.
Employers are giving it some thought. In the MassMutual survey, 43 percent of respondents say they offer generous salary with incentive compensation, 23 percent offer executive life insurance, 20 percent provide financial planning assistance, and 18 percent provide executive disability insurance. Only 9 percent offer the “golden handcuff” known as retirement plans.
To retain key employees, however, offering the right mix of benefits also is important because not all benefits are created equal. In fact, key employees might value certain benefits over others, and competitive pay is only a start. They might covet retirement savings plans, preventive health and wellness incentives, bonuses that are used to pay life insurance premiums, and financial education perks, as well. Benefits such as employer-paid disability and non-qualified deferred compensation can not only help retain the best and brightest, they can help attract them, as well.
What’s the best way to tailor your benefits to the workforce? Powers, an advocate of top executives providing a style of servant leadership that takes care of employees, recommends staying on top of what the local market is providing and internal surveying. “It’s a combination of both,” he advises. “I think you’ve got to look at the marketplace. If someone is going to leave, they are going to a competitor probably, if they stay in that industry. So, what are your competitors offering, and are you staying at least even with what the market is providing?
“The other thing — and we do this here at our firm on at least an annual basis — is to get feedback from our employees and make sure they are happy with the benefits. We’ve made changes over the years due to our dissatisfaction with carriers, and then we’ve made sure we’re providing what’s important to them.”
JP Aime, financial advisor and president of Focal Point Financial Strategies, says that in many cases, business owners rely on good, old-fashioned loyalty and just assume employees will be in play for them for an extended period of time.
“Obviously, there are key non-negotiable benefits that need to be in play for you to be competitive in the marketplace,” notes Aime. “But the above and beyond that, when you look at key employees, what we typically find is that most business owners have an understanding in their head regarding who those key employees are, but yet they don’t typically do a good job of identifying them and then providing additional benefits to those folks to keep them loyal.”
Andrew Klein, financial advisor and CEO of Focal Point, says most clients actually have covered the basics such as health insurance and 401(k)s, but struggle to identify key employees. They might have an idea in their own minds, but they haven’t identified those in writing and with the executive team or their management team. The question of who you would bring with you if you left not only is a good place to start, but it also makes the process simpler.
The answer of which benefits to offer, Aime notes, “is all over the map,” depending on what truly motivates your key people. “For instance, one of the things a client did is buy life insurance on their key employee for the benefit of their family,” he notes. “It wasn’t any additional compensation. It wasn’t anything like that, it was just something that he [the business owner] deemed as something that would get a response that he was looking for, which was continued loyalty and service to the organization.”
Deferred compensation comes up pretty often, Aime adds, but in different industries. Depending on who those key folks are, deferred compensation might not be enough. “They may be in a position where they prefer immediate gratification, as much of our society does today, so having to wait five, 10, or 15 years to cash in on some deferred compensation — you’d be surprised how many people would walk away from that just because it seems too far out in the future.”
Beyond the keys
The focus on key employees isn’t meant to suggest that other employees should be ignored on the benefit front. For all employees, 54 percent of MassMutual survey respondents say they offer health insurance, 48 percent provide flexible work schedules, 34 percent offer retirement savings, 29 percent supply life insurance, and 28 percent offer disability income insurance. Only 10 percent provide financial education programs. (For what it’s worth, 43 percent claim to offer a generous salary.)
Nathan Brinkman, president of Triumph Wealth Management, provided a case in point and suggested a broader view that extends beyond key employees. After losing a key employee in September 2017, Brinkman was able to hire her back a year later, but an important lesson took hold. “Part of it was me not paying attention to how our business has evolved,” Brinkman acknowledged. “We’re advising business owners that they have to take care of those who are taking care of your business. In this study, it’s certainly key employees, but I would submit in this economy, it’s really all employees because if you lose people that are anywhere near the heartbeat of cash flow in a business, you’re going to feel it.”
Another client, this one in the transportation industry, told Brinkman they could hire 10 semi-truck drivers tomorrow, but they are just not out there. That caused a real shift in thinking about how to retain existing drivers, he notes. “They said, ‘We better keep the truck drivers we have because although we’d love to hire more, we better make sure we don’t lose any on the backside of this thing.’ So, you get more creative in terms of how you leverage your benefits and how you leverage that relationship.”
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