For owners of closely-held, service-based businesses who are contemplating the total or fractional sale of their company, attracting and retaining key employees is critical to creating and sustaining value for the long-term. A service-based business faces the unique challenge of proving its continuing viability to a potential buyer since its assets are its people; it is the employees’ collective expertise, skills, relationships and knowledge that help create value for the business. As a result, a business that can keep its best employees both during and following a transaction will be much more likely to keep its customers, thus retaining its value.
The competition for talented employees is underway as the economy attempts to recover from the impacts of the COVID-19 pandemic. So how do you attract and keep employees in order to not only ensure the viability of your company but to continue to build its value? Establish a plan to actively demonstrate the value of your company through key employee attraction and retention strategies.
First, you have to attract and hire the right people. Then, you must give them an incentive to stay. Oftentimes, the promises of competitive compensation and a retirement plan are simply not enough. However, equity incentives can enable you to provide your most valued employees with equity positions similar to what they might receive if they worked for a publicly-traded company. A variety of alternative forms of real or synthetic equity can be used, including stock options, restricted stock, phantom stock or stock appreciation rights.
Developing incentive plans that are based on impacting employee behavior by providing incentives that are meaningful from the employee’s perspective will create a line of sight for the employee. Employees need to understand the linkage between what they do, how it drives company value and the impact it has on their incentive. Business owners should remember to be creative and stay consistent with strategies and rewards that are currently in place. We recommend seeking expert counsel to ensure your reward system best fits your long-term goals.
In addition to incentives, operational changes are also key to building and sustaining value for your company. As the business owner, gradually phase yourself out of your company’s day-to-day operations in order to position it as a successful, independently functioning enterprise. Give your best employees more responsibility and hold them accountable for their business decisions. You will find that, by making management accountable, you will help create in them a sense of ownership and, therefore, an increased sense of loyalty. The right combination of corporate responsibility and incentives can be the key to attracting and retaining highly valuable employees.
There are also often-overlooked factors that greatly contribute to employee attraction and retention, including company reputation, the nature of personal and professional development opportunities, individual job titles, working conditions, location and the company’s culture.
Business owners are inundated with the day-to-day activity of running a successful company, which can make it difficult to objectively evaluate all of the necessary factors to ensure employee attraction and retention. That is why it is important to work with a trusted advisor to develop a realistic and personalized plan to attract and retain key employees. If your company is rich with these intangible assets, take the proper steps now to strengthen your business, ensure its long-term viability and ultimately increase its marketplace value.
Henry Ventura is a Director at Prairie Capital Advisors, Inc. He can be contacted at 404.809.2444 or by email: hventura@prairiecap.com.
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