TRANSITION TALK

Employee Compensation Strategies

Posted by FP Transitions on Oct 16, 2014 10:00:00 AM

Building a business that will continue to grow – even as you begin to work less – requires an efficient infrastructure and the right people. Creating such an infrastructure takes time and constant adjustment.

If you offer competitive wages and benefits you’ll not only attract, but hold on to talented professionals. Additionally, you should consider the strategy being used increasingly by many of your peers: equity compensation. Equity is providing an almost unfair edge for retaining and attracting top talent in the financial services industry.

Equity rewards key staff members for their dedication by granting them a stake in the business’ success and growth as a part of their compensation package.There are many ways to utilize this strategy, but the simplest and most common approach is through non-voting stock or membership interest grant. Of course, your key staff members must be properly licensed and must remain under your employ to receive and retain the benefits of equity growth.

There are many reasons to use equity compensation: either to supplement your existing compensation package, or in place of large cash bonuses. One of the primary benefits of this strategy is that it will help your employees start thinking and acting like owners; it will help get them invested in the overall performance of your company.

Equity compensation also allows you to offer tremendous value to key employees without having to outlay tens of thousands of dollars in cash from your bank account. For example, if you had planned to offer a $15,000 year-end bonus to an employee, consider offering them $15,000 worth of equity and $5,000 cash (to help them pay the taxes due on the grant). In this example, the employee receives a greater benefit, you keep the additional $10,000 in the bank, and you are more likely to keep that employee long-term.

Equity compensation can be as simple or as complex as you deem appropriate and necessary: you can use voting or non-voting equity; your grant can come with or without a vesting period; the vesting can happen gradually or all at once at the end of the term. The point is, you have many choices when it comes to equity compensation.

Before you consider using this strategy, be sure that you setup your business structure correctly, that the participants are properly licensed to be owners in your firm, and that you understand the tax implication for both grantor and grantee.

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Topics: Compensation, Succession Planning

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