Recruitment business owners often ask us about their options for putting in long term incentive schemes to retain and motivate key members of their team. The options are many and varied but in this blog series I will look at the usual suspects covering both cash based schemes and equity based schemes.
Let’s start with the most ‘basic’ of schemes – a bonus scheme. Although such schemes are traditionally associated with individual performance and short term horizons, it is perfectly possible to design a scheme that is more balanced and more in line with your business objectives; encompassing individual performance, team performance, and overall company performance.
Things get rather trickier when you get in to the detail…
- What are the key goals I want the employee to target?
- How do I measure success against the targets?
- What weighting do I apply to individual v team v company performance?
- How often do I pay out?
The basic SMART principles will get you most of the way but it is very easy to over complicate things so just bear in mind, for a bonus scheme to be effective, the employees need to understand how it works.
The amounts at stake are, again, more a question of art than science. They have to be worth having as far as the employee is concerned but also must be affordable for the company. Caps on rewards either across the board or for each individual are a possibility but then what happens to a top consultant when he’s maxed out – might he or she be tempted to build up his or her pipeline to the next financial year? In essence, for most recruitment businesses if you can structure a scheme so that bonus opportunities are reasonably limited in monetary terms until the overall GP figure covers overheads, then you should feel reasonably relaxed about sharing profit with the consultants.
An additional consideration might be a retention bonus payable after the employee has been in the company’s service for a certain period of time – golden handcuffs if you like. It would be fairly reasonable here to include a claw-back provision so that you’re protected in case the employee isn’t quite as loyal as it appeared.
You don’t operate in a bubble of course and there is probably a need to try and benchmark your incentive scheme against competitors.
From an employment law standpoint you should describe the scheme as being discretionary in nature as opposed to a contractual entitlement. This may give you some flexibility if your business environment suddenly changes, or if an employee leaves – you should consider both good (part as friends) and bad (you have to fire them or they join a competitor) leaver provisions. A recent additional complication is that it seems now that any regular bonuses you pay must be taken into account when calculating average holiday pay, so it all needs to be tracked.
Our blog series will continue over the coming weeks, with more information on engaging your employees both financially and non-financially. If you would like to discuss any queries, or the subjects raised in the series, please contact me on 01462 687333 or email firstname.lastname@example.org.