Employees, such a hard conversation. We all need them as an owner to help us be able to free up our time. And at the same time, it can be incredibly difficult to keep the ones around that really do matter for the business. There have been several times over the course of the years where we’ve had people say, well, I don’t need to worry about retaining anyone because they’ve been here for 10, 20 years. They’re not going anywhere. And surprisingly, six months later, they’re out. They’re gone. And there are lot of confusion around, well, what could I be using to retain my employees? This subject, a lot of people try to do it, but then they kind of do it, and it’s not really doing what they wanted it to accomplish.
So for an example, I offer a 401k or health benefits. I provide more paid time off. Those are all things that can be enticing. Or let’s say I provide a cash bonus every single year or a monthly bonus. The sad thing about that is usually when the bonus is paid out, it’s forgotten within a few days. And then the expectation is, well, I want another bonus. Especially if there are no metrics that are truly tied to, well, how am I getting my bonus? Especially when you give them to across the board for all employees, what happens is that there is this idea of like, well, what did I do to get it? And how was the number determined? And usually there’s not a lot of justification for it.
There are very crucial people inside your business, ones that enhance profitability, they impact culture, they help your time. Those are the ones that we’d really want to be able to hone in on and say, well, what am I doing for these people to help keep them around? What’s going to keep them glued into the business? And this is where retention programs come into play. There’s three pieces of criteria that we really want to hone in on when we create a retention plan.
The first thing is we want it to be a substantial benefit that they would receive. So substantial usually is between 20 to 30 times their total compensation over a certain window of time. So if we’re looking at seven years, 10 years, we take their compensation, multiply it by the years, and then take 20 to 30 % of that as the target. Because the last thing we want to do is give them a small little bonus after a seven to 10 year time period, because realistically, we want them to wake up tomorrow and say, well, yeah, I want to stick around because there’s a pretty substantial reward at the end of all of this.
A question you might be asking, well, wow, that’s a lot of money. Well, yeah, it’s supposed to be. There are two other factors that come into play. The other one is it has to be deferred. Deferred meaning they have to be there the entire time to be eligible for that benefit. If they leave early, well, they’re not going to receive it. So the only harm or the only risk that’s here is, well, they stay the entire time period, you have to pay it out.
Which then the other part here is that there’s some sort of cost recovery for the business. So oftentimes, depending on the program you use, some of them are informally funded, so the agreement doesn’t need to have money set aside.
However, it’s usually the best position to be in is to start putting the money aside, so then when that time does come in the future, you’re not caught in a position where you don’t have the funds to pay them. So depending on where the money goes, well, it could be going into different assets or buckets, and then if they were to leave, well, all that money goes back into the business because that account or the product that you bought to put the money into is owned by your business.
When you look at those three different pieces of criteria, we want to make sure it’s substantial, we want to make sure it’s deferred, and we want to make sure that there’s some sort of cost recovery. And when you really put those in play with an actual agreement, so this is very important here, that you want to create a retention agreement to where it basically states how it’s going to accumulate and also when they’re eligible for and how it’s going to be paid out. So then it’s actually formalized in writing.
This is a true retention program to where you want to lock in people that really matter to your business. Let’s take a close look at what that could mean for you and how you can really be able to enhance the benefits for those that really make an impact inside your business.
Video Summary:
When it comes to retaining top talent, many business owners rely on traditional bonuses or standard benefits. But these common tactics often fall short—employees come to expect them, and they rarely inspire long-term loyalty. To truly retain key team members, a more strategic approach is needed.
One effective solution is implementing a formalized retention plan. These plans center on three key principles:
- The reward must be substantial—a meaningful financial incentive that’s worth staying for.
- It must be deferred, requiring employees to stay for a set period before they receive the benefit.
- There should be a cost recovery mechanism if the employee leaves early.
This structured approach not only incentivizes long-term commitment but also protects the business’s investment in its people. By aligning incentives with loyalty, employers can create a more stable, high-performing team positioned for long-term success.
This material is intended for general public use. By providing this content, Park Avenue Securities LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation, or to otherwise act in a fiduciary capacity. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. Tom is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. Florida Veterinary Advisors and The Next Step Planning Group are not an affiliate or subsidiary of PAS or Guardian. California Insurance License #0K80141. AR Insurance License #15823672. Florida Veterinary Advisors is not registered in any state or with the U.S. Securities and Exchange Commission as a Registered Investment Advisor. The individuals associated with Florida Veterinary Advisors do not maintain specialized licenses or qualifications for the financial services provided to veterinary professionals. 7989827.1 Exp 5/27