<aside> <img src="/icons/arrow-right_orange.svg" alt="/icons/arrow-right_orange.svg" width="40px" /> From the Pay Your Top People

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Problem: I’m fearful they will leave (& I need them to make a lot and stay)

<aside> <img src="/icons/checkmark-line_orange.svg" alt="/icons/checkmark-line_orange.svg" width="40px" />

Solutions:

• Simple: Deferred comp with vesting
• Sophisticated: Equity or phantom stock </aside>

Example

An owner has a key employee that is critical to the day-to-day management of the business.

This employee needs to be retained for the business to operate well into the future.

The core elements of any effective compensation solution in this case is to provide long term rewards to the key employee that make it lucrative to stay AND expensive to leave.

Solution: The deferred bonus plan

A generous portion of each year’s profits are put into a deferred account a few years into the future (e.g. say 3 years away). These profits are deposited each year on a rolling basis for the employe as new compensation.

So on a rolling basis, as the company continues to do well, more deferred earnings grow in the account. The employee needs to stay at the company to receive the new deferred bonuses.

These deferred bonuses create:

1. new long term compensation that makes the role even more lucrative
2. an expensive deterrent to leaving
   1. departing the company would be saying goodbye to a large amount of money that would grow each year that the company did better