• COVID-19
  • Insights
  • Who We Help
    •   Industrial Automation
    •   Manufacturing & Distribution
    •   A&E Professional Services
    •   International Businesses
      • ◦   Expanding Outside the U.S.
      • ◦   Expanding to the U.S.
  • Services
    •   COVID-19
      • ◦   Cash Flow Confidence Assessment
      • ◦   Maximize Your Loan Forgiveness
      • ◦   5 Key Focus Areas
      • ◦   COVID-19 Resource Center
    •   Client Accounting
      • ◦   Software Solutions
      • ◦   Accounting Support
      • ◦   Reporting
    •   Tax
      • ◦   R&D Tax Credit
      • ◦   Tax Credits & Incentives
      • ◦   Tax Structure
      • ◦   Federal Tax
      • ◦   State & Local Tax
      • ◦   Personal Tax
      • ◦   Other Tax Filings
    •   Advisory & Assurance
      • ◦   Assurance Levels
      • ◦   Reporting
      • ◦   Employee Benefit Plan Audits
      • ◦   Technical Accounting & Reporting
    •   Consulting
      • ◦   Data Analytics
      • ◦   Transaction Services
      • ◦   Business Planning
      • ◦   Succession & Exit Strategies
    •   International
      • ◦   International Tax
      • ◦   Foreign Direct Investment
      • ◦   Global Expansion
      • ◦   International Accounting
  • Events
  • Careers
    •   Why C&M
    •   Students
      • ◦   Campus Events
      • ◦   Internships
      • ◦   Reach Beyond Program
    •   Experienced Professionals
      • ◦   Team member profile videos
    •   Opportunities
    •   Employee Journals
    •   Office Tour
  • About Us
    •   How We Help
      • ◦   Service Approach
      • ◦   Affiliations
      • ◦   Communications & Technology
    •   Meet Our Team
    •   Testimonials
    •   Our Videos
    •   Our Story
  • Contact Us
  • Subscribe
CHANGE COUNTRY:
  • United States
  • 中国
  • Client Login
Clayton & McKervey Logo
  • COVID-19
  • Insights
  • Who We Help
  • Services
  • Events
  • Careers
  • About Us
  • Contact Us
  • Subscribe
    • Most Recent Insights
  1. Home
  2. Insights
  3. Maximize Your Company’s Value: Retain Key Employees

Maximize Your Company’s Value: Retain Key Employees

Posted by Ben Smith and Tim Hilligoss on February 28, 2017

Ben Smith Ben Smith

If you own a closely-held business, one of the most critical questions you may ask yourself is, “How can I maximize the value of my company for future sale?” Although you may not anticipate selling in the short-term, there are initiatives you can and should consider years in advance to better prepare you and your business for one of the most important events you will face as a business owner. One such initiative is creating a plan to ensure your key employees continue employment after a sale.

There is a direct correlation between the value of a company and its key employees. Most businesses have at least one or two key employees who are disproportionally responsible for the success of the company. Hence, in the event of a future sale, the retention of these employees will become a point of concern to prospective buyers. Incentivizing these key employees now may:

  • Allow you to discuss potential sales with them and gain advocates and assistance in the sale process
  • Increase the likelihood they will continue employment during the post-sale period
  • Help alleviate some of a buyer’s concern and preserve, or even increase, your company’s value

In worst-case scenarios, key employees who become aware of a sale during due diligence will be faced with a sense of uncertainty regarding future employment and potential premature separation. Having a plan in place can prevent these unintended consequences.

You may now be asking yourself what can be done as a business owner to preserve the value of your company during and after the selling process. Or, better yet, what strategies can be implemented to maximize the potential selling price while simultaneously safeguarding retention and incentivizing key employees?

Retention Bonus & Agreement

A retention bonus is paid in addition to regular compensation and is offered as an incentive to retain key employees during the selling process. Typically, the bonus is paid out by the seller when the transaction is finalized and is forfeited if the employee leaves prior to the sale. It is concurrently used with a retention agreement. The agreement establishes the legal commitment and specifies the details of the arrangement,
such as: payout amount, retention period and undertakings.

Phantom Stock

In substance, phantom stock is a form of compensation that mirrors that of equity ownership. The arrangement pays out a cash reward based on the increase in value of the company over a period of time. At inception, an initial value is established and “phantom” units, or hypothetical stock, are used to track appreciation in value. One of the advantages, from an owner’s perspective, is the strategy does not actually require any change in ownership structure.

Management Equity Plans

The most complex and comprehensive of options related to management retention gives ownership to key employees. The agreements have a wide range of structures and are generally subject to certain vesting requirements based on time, performance or both. How these plans are designed are limited only by your imagination. While they can be the most complex, and the most expensive to implement, they are considered to be very effective and are often instituted by buyers if there is not already a plan of this type in place.

These are just three of the options that can be implemented to help with the retention of key management personnel to assist in maintaining or enhancing the value of your company. If you would like to learn more about how you might be able to implement one of these plans or assistance with an analysis of the financial impact of these plans on your business, please contact us.

Our team is always ready to help.

Please contact us for more information.

Ben Smith

Ben Smith

Senior Manager, Consulting

Contact Ben   |   Read Ben's bio

related news

How to Calculate R&D Tax Credits

As we’ve seen in the first two installments of this series, business owners often miss out on the R&D tax credit opportunity and the bottom-line infusion it can provide. Many…

Read full story

Doing Business in Mexico: What to Expect this Year

Without a doubt, this year will be interesting for Mexico. To start, it’s an election year and we all know what that means…a lot of uncertainty. As the global pandemic…

Read full story

What Expenses Qualify for R&D Tax Credits?

The R&D tax credit is one of the most overlooked opportunities to boost your bottom line. Many business owners fail to claim it under the mistaken belief that they’re not…

Read full story

Clayton & McKervey Launches The Sound of Automation Podcast

Media Contact: Denise Asker, dasker@claytonmckervey.com; 248.936.9488 Southfield, Mich.—February 17, 2021—Clayton & McKervey, a certified public accounting and business advisory firm helping growth-driven companies compete in the global marketplace, is excited…

Read full story

Misconceptions About the Research & Experimentation Tax Credit

As companies put more emphasis on Industry 4.0 and business processes become more automated and accessible, the opportunities for Research & Experimentation tax credits increase. The Research and Experimentation (R&E)…

Read full story

Categories

Jump directly to the topics that matter to you most.

  • A&E Professional Services
  • About Us
  • Advisory & Assurance
  • Business Owners
  • C&M Press Releases
  • Careers
  • China Consulting
  • Clayton & McKervey
  • Client Accounting Services
  • Consulting
  • COVID-19
  • Data Analytics
  • Estate Planning
  • Expanding Outside the U.S.
  • Expanding to the U.S.
  • From the President
  • Industrial Automation
  • International
  • Manufacturing & Distribution
  • Mexico Consulting
  • Podcasts
  • Private Client Services
  • Tax & Tax Credits
  • Transaction Services
  • Videos

Authors

Read news direct from our managers and stakeholders.

    • Ben Smith
    • Beth Butchart
    • Bryan Powrozek
    • Carlos Calderon
    • Casey Haggerty
    • Clayton & McKervey
    • Dave Van Damme
    • Denise Asker
    • Eric Lin
    • Jim Biehl
    • Julie Killian
    • Kevin Johns
    • Margaret Amsden
    • Miroslav Georgiev
    • Nina Wang
    • Rob Dutkiewicz
    • Ruben Ramirez
    • Sarah Russell
    • Sue Tuson
    • Tarah Ablett
    • Teresa Gordon
    • Tim Finerty
    • Tim Hilligoss
    • Wendy Reedy

Additional Resources

Additional news from Clayton & McKervey can be found below.

  • Subscribe to our email newsletter
  • View upcoming events
  • Contact us to let us know how we can help you
  • Main Content
  • Related Insights

Maximize Your Company’s Value: Retain Key Employees

Posted by Ben Smith on February 28, 2017

Ben Smith

If you own a closely-held business, one of the most critical questions you may ask yourself is, “How can I maximize the value of my company for future sale?” Although you may not anticipate selling in the short-term, there are initiatives you can and should consider years in advance to better prepare you and your business for one of the most important events you will face as a business owner. One such initiative is creating a plan to ensure your key employees continue employment after a sale.

There is a direct correlation between the value of a company and its key employees. Most businesses have at least one or two key employees who are disproportionally responsible for the success of the company. Hence, in the event of a future sale, the retention of these employees will become a point of concern to prospective buyers. Incentivizing these key employees now may:

  • Allow you to discuss potential sales with them and gain advocates and assistance in the sale process
  • Increase the likelihood they will continue employment during the post-sale period
  • Help alleviate some of a buyer’s concern and preserve, or even increase, your company’s value

In worst-case scenarios, key employees who become aware of a sale during due diligence will be faced with a sense of uncertainty regarding future employment and potential premature separation. Having a plan in place can prevent these unintended consequences.

You may now be asking yourself what can be done as a business owner to preserve the value of your company during and after the selling process. Or, better yet, what strategies can be implemented to maximize the potential selling price while simultaneously safeguarding retention and incentivizing key employees?

Retention Bonus & Agreement

A retention bonus is paid in addition to regular compensation and is offered as an incentive to retain key employees during the selling process. Typically, the bonus is paid out by the seller when the transaction is finalized and is forfeited if the employee leaves prior to the sale. It is concurrently used with a retention agreement. The agreement establishes the legal commitment and specifies the details of the arrangement,
such as: payout amount, retention period and undertakings.

Phantom Stock

In substance, phantom stock is a form of compensation that mirrors that of equity ownership. The arrangement pays out a cash reward based on the increase in value of the company over a period of time. At inception, an initial value is established and “phantom” units, or hypothetical stock, are used to track appreciation in value. One of the advantages, from an owner’s perspective, is the strategy does not actually require any change in ownership structure.

Management Equity Plans

The most complex and comprehensive of options related to management retention gives ownership to key employees. The agreements have a wide range of structures and are generally subject to certain vesting requirements based on time, performance or both. How these plans are designed are limited only by your imagination. While they can be the most complex, and the most expensive to implement, they are considered to be very effective and are often instituted by buyers if there is not already a plan of this type in place.

These are just three of the options that can be implemented to help with the retention of key management personnel to assist in maintaining or enhancing the value of your company. If you would like to learn more about how you might be able to implement one of these plans or assistance with an analysis of the financial impact of these plans on your business, please contact us.

Our team is always ready to help.

Please contact us for more information.

Ben Smith

Senior Manager, Consulting

Contact Ben   |   Read Ben's bio

related news

How to Calculate R&D Tax Credits

As we’ve seen in the first two installments of this series, business owners often miss out on the R&D tax credit opportunity and the bottom-line infusion it can provide. Many…

Read full story

Doing Business in Mexico: What to Expect this Year

Without a doubt, this year will be interesting for Mexico. To start, it’s an election year and we all know what that means…a lot of uncertainty. As the global pandemic…

Read full story

What Expenses Qualify for R&D Tax Credits?

The R&D tax credit is one of the most overlooked opportunities to boost your bottom line. Many business owners fail to claim it under the mistaken belief that they’re not…

Read full story

Clayton & McKervey Launches The Sound of Automation Podcast

Media Contact: Denise Asker, dasker@claytonmckervey.com; 248.936.9488 Southfield, Mich.—February 17, 2021—Clayton & McKervey, a certified public accounting and business advisory firm helping growth-driven companies compete in the global marketplace, is excited…

Read full story

Misconceptions About the Research & Experimentation Tax Credit

As companies put more emphasis on Industry 4.0 and business processes become more automated and accessible, the opportunities for Research & Experimentation tax credits increase. The Research and Experimentation (R&E)…

Read full story

Categories

Jump directly to the topics that matter to you most.

  • A&E Professional Services
  • About Us
  • Advisory & Assurance
  • Business Owners
  • C&M Press Releases
  • Careers
  • China Consulting
  • Clayton & McKervey
  • Client Accounting Services
  • Consulting
  • COVID-19
  • Data Analytics
  • Estate Planning
  • Expanding Outside the U.S.
  • Expanding to the U.S.
  • From the President
  • Industrial Automation
  • International
  • Manufacturing & Distribution
  • Mexico Consulting
  • Podcasts
  • Private Client Services
  • Tax & Tax Credits
  • Transaction Services
  • Videos

Authors

Read news direct from our managers and stakeholders.

  • Ben Smith
  • Beth Butchart
  • Bryan Powrozek
  • Carlos Calderon
  • Casey Haggerty
  • Clayton & McKervey
  • Dave Van Damme
  • Denise Asker
  • Eric Lin
  • Jim Biehl
  • Julie Killian
  • Kevin Johns
  • Margaret Amsden
  • Miroslav Georgiev
  • Nina Wang
  • Rob Dutkiewicz
  • Ruben Ramirez
  • Sarah Russell
  • Sue Tuson
  • Tarah Ablett
  • Teresa Gordon
  • Tim Finerty
  • Tim Hilligoss
  • Wendy Reedy

Additional Resources

Additional news from Clayton & McKervey can be found below.

  • Subscribe to our email newsletter
  • View upcoming events
  • Contact us to let us know how we can help you

Website

  • COVID-19
  • Insights
  • Who We Help
  • Services
  • Events
  • Careers
  • About Us
  • Contact Us
  • Subscribe

Location

+1 248.208.8860
2000 Town Center
Suite 1800
Southfield, MI
48075 | USA

Connect

  • Events
  • Newsletter
  • Client Login

Social

  • LinkedIn
  • Facebook
  • Twitter
  • Glassdoor
  • YouTube
  • Instagram

Awards

DFP Top Work Places Best & Brightest
Prime Global

Tax | Accounting | Assurance | Consulting | Highly technical and accessible team of CPAs helping growth driven, closely held, middle market companies compete in the global marketplace. Michigan-based accountants and advisors focused on helping business owners in the United States and throughout Europe and China.

Privacy Policy Disclaimer

© 2021 Clayton & McKervey