High-Performing Superstars – Building and Retaining Your Team – Part 7April 7, 2019
Part Seven: Golden Handcuffs
Golden Handcuffs, is all about retention. Well, there are some side benefits of recognition and motivation, but first and foremost, the objective is retention. Golden Handcuffs is a term that applies to any program or activity that attempts to bind an employee to the organization in a positive, rewarding manner.
Golden Handcuffs normally take the form of stock and/or bonus structures. The stock, real or phantom, may be part of the bonus structure. You can certainly understand how awarding an employee an equity position in the company elevates self-esteem, not to mention the financial stake, in a manner that others bidding for his or her services may not be able to match. Cash bonuses, specific to the position and beyond those incentives mentioned earlier, may be tied to defined performance measures related to the position. Stocks that are part of incentive stock option schemes, as well as cash bonus payouts, will be tied to a vesting schedule of three to five years.
As bonuses and stocks are earned, over time, the employee ends up with overlapping vesting schedules. An employee tempted by an offer from another company, has to consider the monies being left behind within the vesting schedules and recognize how long it’s going to take to make up the loss. That could easily be in the tens of thousands of dollars. Truly, a strong retention incentive.
Normally, Golden Handcuffs are not considered for all employees. However, as the shortage of skilled workers continues to worsen, we may have to recalibrate our thinking and consider ways to apply the concept across the organization. Many start-up, technology companies have, in fact, applied elements of Golden Handcuffs to their entire organization.
For purposes of this discussion, I will limit the application to a select group of employees. When you look at various positions within a company and the individuals that fill them, we like to say the positions are all important, as they are. Reality dictates that certain positions are more critical to the development and growth of the business. The individuals in those positions, while not indispensable, if they were to leave the company, would certainly cause a period of disruption that could be costly. These key positions, and the people in those positions, are the ones we would consider applying Golden Handcuffs. Even with pay and benefits above norm, with good recognition and appreciation; these employees are prime targets of businesses looking for similar skills. Therefore it’s important to consider this extra, added level of retention effort.
In addition to protecting against key employees being hired away to other companies, Golden Handcuffs can be crucial when you’re trying to sell the company, particularly with service companies. With a service company, you have nothing to sell, but your people. The services you offer are provided by your people and they are free to take their intellectual capital to the highest bidder. Therefore, you need to find ways, such as Golden Handcuffs, to bind these people to the organization so you can have something to sell.
Even if your company is not a service provider, Golden handcuffs on key positions can be important in your efforts to sell the business. Don’t lose sight of the fact, the people that make up your organization are the primary reason why your company has been able to build its value and be attractive for acquisition. Buyers have less reason to discount the value you’ve applied to your business, if you can demonstrate the ability to transition a functioning organization upon sale.
This concludes the seven Silver Bullets to hiring and retaining a strong organization in an increasingly difficult labor market.
Good luck with hiring and retaining your team of superstars.
Sam Langfitt has more than 40 years of diverse business experience. This experience was gained leading companies overseas as well as domestically, with successful turnaround, M & A, joint venture and strategic partnering activities. He has served on Boards of Directors in Europe, Canada and the U.S. Mr. Langfitt has owned and operated two businesses, including his current practice, advising business, owners, CEOs and Presidents
To find out more about the services provided by Mr. Langfitt, visit http://www.TriselCoaching.com/