The Challenge
Jo-Ann had two extremely valuable employees in her mid-sized manufacturing company, and was considerably worried they could potentially be poached by a competitor. Should this happen, operations would take a detrimental hit for an extended period of time, especially as she’d have to train not just one replacement, but two.
She asked herself, “What if I could provide more specifically for these 2 employees to help better retain them on staff?” She wanted to show they were valued, specifically with financial incentives.
Financial Planning Strategy
Jo-Ann asked her financial planner what his thoughts on the matter might be. After a full meeting to discuss, her advisor came back with some of the below ideas:
- Equity Compensation:
- Stock Options: Jo-Ann introduced a stock option plan for Emily & James (The employees in question). This allowed them to buy shares at a set price, giving them a direct stake in the company’s future success. This long-term incentive was designed to align their interests with the company’s growth and profitability, as it allowed them to have “Skin in the game.”
- Restricted Stock Units (RSUs): In addition to stock options, Jo-Ann offered RSUs that would vest over a period of five years. This provided the employees with a tangible reward that increased in value as the company grew.
- Performance-Based Bonuses:
- Annual Bonuses: Jo-Ann implemented a performance-based bonus structure tied to individual and company performance metrics. This rewarded the employees for their contributions to the company’s success and provided immediate financial incentives should they hit specific metrics that add to the growth of the company.
- Milestone Bonuses: Jo-Ann also introduced a potential “Milestone” bonus, for achieving specific company goals, such as completing a major project or reaching revenue targets. Again, adding to the incentivization for the employees to continually grow Sarah’s business.
- Enhanced Benefits Package:
- Retirement Contributions: Jo-Ann increased contributions to their retirement plans, providing both a tax-advantaged benefit and a way to help secure their long-term financial futures.
- Education and Professional Development: She funded advanced training and certification programs to support their professional growth, adding a valuable benefit that also enhanced their skills.
- Recognition and Career Development:
- Career Path Planning: Jo-Ann worked with Emily and James to create clear career development plans, including potential promotions and leadership opportunities within the company, as well as added potential equity buy-in(s). This helped them see a future with the company and feel valued for their contributions, but also helped them feel even more certain that any growth they produce for the company, will also add to their own personal net worth above and beyond a simple paycheck.
Results
- Retention: Both employees bought in to the company, and believed in the new bonus structures and benefits offered. Jo-Ann, now has no worry these employees will go anywhere.
- Increased Engagement: The stock options and performance bonuses motivated them to work harder, contributing to increased productivity and innovation within the company.
- Company Growth: The company’s performance improved, partly due to the increased engagement and motivation of key employees, leading to higher revenues and profitability overall.
Conclusion
By implementing a well-rounded financial planning strategy, Jo-Ann successfully retained and rewarded her key employees. The combination of equity compensation, performance-based bonuses, enhanced benefits, and career development opportunities created a compelling package that not only addressed the immediate financial needs of Emily and James but also aligned their interests with the company’s long-term success. This case study demonstrates the value of using strategic financial planning to build a motivated and loyal team, which is crucial for any business owner looking to achieve sustained growth and success.
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