Treat your talent pool so well that your business can run without you on a day-to-day basis!
Key Person Dependency (KPD) is the notion of a business being reliant upon few key people. Commonly entrepreneurs and founders of successful businesses have had to do a huge amount of heavy lifting themselves to get the business off the ground…hats off to them for doing that! The problem is that those same successful people have trouble letting go of the control panel, resulting in KPD.
KPD can cripple businesses for the following reasons:
- Morale and enthusiasm drops if employees are performing above expectation and the only person benefiting is the boss.
- Business value is heavily impeded by KPD . If you’re looking to raise funds or exit, the wider spread the expertise in the business, the greater value you are likely to fetch. This concept is simple…what is the investor/buyer paying for if KPD exists and you could disappear tomorrow?
- Staff turnover increases. The costs associated with hiring and firing are huge from a monetary perspective. In addition, a reputation as a ‘bad employer’ is hard to shake.
Focus on becoming an employer of choice by incentivising your talent pool. No, we’re not talking about pandering to the needs of a particular generation, we’re talking about a true meritocracy where above expected performance receives above expected reward.
There are 4 common strategies for implementing employee incentives. These are:
- Cash Bonus Plan – owners allocate a portion of profit into a bonus pool. Employees stand to share in the pool based upon organisation and individual performance.
- Employee Share Option Plan – a tailored scheme whereby employees are issued rights and options in the business over time. There are tax concessions/deferrals available for employees of businesses operating less than 10 years and with a turnover less than $50m.
- Real Equity – owners can sell equity to employees which can be paid for by cash or continued contribution. This is typically reserved for a handful of key people and there are various tailored structures that can be implemented to achieve the desired result.
- Non-Monetary Incentives – there is no monetary substitute for ensuring personal development and high self-worth are part of your business culture. Strategies include – clear role descriptions, development and training opportunities, promotion opportunities and adequate review structures. Non-monetary incentives should already occur in your business and can be combined with the 3 monetary incentive options above.
Set adequate incentives today in order to realise the value in your business tomorrow.
DISCLAIMER: This post is the opinion of the author and in no way constitutes legal advice.