Are you keeping the best talent?

Of course you need to offer a competitive salary package and increasingly staff will want a range of other benefits both financial and non financial, including increased flexibility in working hours.

But as an employer you will also want to identify the best talent, the future leaders of the business, and encourage them to stay by recognising and rewarding high performance.
We’ll look at the short, medium and longer term aspects of reward structures and what factors you should be considering.

Short term rewards

Typically for more junior staff will depend on the specific role involved. For sales staff this will typically be a commission scheme, for non sales staff a performance bonus. In both cases the measures must be clear, easily understood by the staff member and cover a specfic period of time – typically a month, quarter or year.

Sounds simple but in many cases schemes are over- engineered with staff being unclear on what to expect. Short term rewards also need to be reviewed on a regular basis as the underlying business may have changed due to growth and/or restructuring and therefore targets will need to be reset.

Medium term rewards

Usually for more senior staff/management, build on the principles of short term rewards but are measured over a longer period of time, minimum one year. These will include profit share schemes or profit target based bonuses, either in the individual’s own area of responsibility or for the company as a whole or both. They can extend out to several years with a ratchet effect to incentivise increasing levels of performance.

Long term rewards

Usually involve some ‘skin in the game’ and include shares or share options in the company and are typically given to senior management/directors. The benefit of these rewards will take a number of years to be realised and, for SMEs, usually only trigger with an exit or partial exit. The granting of shares can be very motivating but consideration needs to be given to the level of dilution and shareholders agreements to ensure that the owners of the business maintain the level of control they feel is appropriate.

Share options avoid some of these issues and can be more tax effective for the individual. Enterprise Management Incentive approved share options are particularly tax effective for the individual (and the company!) and should certainly be considered if the specific requirements can be met.

The FD4 team have worked with many businesses over the years and helped them design or improve reward systems to increase retention.

In summary the reward structure should be considered on the basis of an employee’s life cycle in the company with rewards increasing over time for the very best talent, the ones you really want to keep.