Over the years I have written of the importance of the key group in your company is, and how they enhance your profitability and company value. Not only do they make you profitable while you are running your business, but this group is the key element to selling the business for the highest potential value in the future.
The inside key group creates the actions that help enhance value, such as implementing value drivers and making sure they are being applied correctly. Key management groups make sure the value drivers are implemented, working, and being enhanced constantly.
The Key group learn about the business, in some cases better than the owner. They make business more valuable. They are so talented the competition is aware of their value, and in many cases would like to recruit them.
It would be wise for the owners to recognize the value of the person or group (key person) and put in place strategies to keep them.
- Incentive programs: The purpose of this is to keep the key person around. To continue the growth of the person within the business. He may be the person who buys, or totally runs the company.
- A vested incentive program: This is to carry out #1, but also to protect the employer from the key person leaving.
- Address the potential of your exit strategy in advance. This can be in the form of a discussion about a “stay bonus.” The “stay bonus,” is used when an owner wishes to sell the company but would like the key person to stay on with the new owner. This enhances the value of the purchase price.
- Keyman/group: Potential purchasers of the company. It is also important to recognize that the owner may be thinking of becoming a passive owner, wishing to have the key group run the company while the owner peeks their head in occasionally.
There are many ways to address the future knowing the key group is key to your exit strategy. This can range from incentive plans, to things like stock options.
Existing Key Employee
Equity Based Incentive program:
- Stock Bonus
- Stock option
- Stock Purchase
Cash based incentives
- Cash bonus
- Deferred compensation
- Phantom stock bonus
- Stock Appreciation Right
- Supplemental Employee Retirement Plan (SERP)
- Executive Coaching Program
Awards based on
- Individual key employee performance
- Key employee group performance
- Company net income growth
- Company sales growth
- Vesting Formula
- Forfeiture Events
- Any other agreements that will protect the owner should the key person (group), leave