In the Alberta marketplace it is becoming more important than ever to maintain the key people in your company. Losing key employees to other firms’ “better offers” or having them go off to start other ventures can be extremely costly to your company financially and culturally. Thankfully, there are options and strong solutions to retain your key people and keep your company growing and shining for years to come.

The cost to replace an entry level employee averages 30-40% of their annual salary. For key individuals in the company this cost can multiply three to four times! The hidden traps of lost business, lowered employee morale, and the fact the exiting employee may take others with them are real threats to the ongoing viability of any business venture.

Employers are looking for solutions to that problem and many have turned to the use of a locked-in key employee bonus. Money is a primary motivator for employees; however, once a big bonus cheque is cut, the employee becomes a “free agent” again and has the choice to leave the company at any time to chase the highest bidder.

A locked-in key employee bonus, sometimes referred to as “the golden handcuff,” is a simple concept to grasp, and is highly effective. Here’s how it works…

1.The employer sets up an escrow account for the employee. A bonus is placed in this account. The account is in the name of employee; however, the employee cannot access the funds in the account until the end of the “lock period.”

2.The size of the bonus deposit and the lock period is individualized for each employee and decided prior to the commencement of the program. Employers can choose lock periods as short as two years or as long as 10.

3.The employer can also give the employee the right to chose investment options with the account, and the employee will receive statements on its performance. Structured appropriately, neither party pays tax on the growth of the fund as it remains in the locked-in account.

4.At the end of the lock period the employee can remove the money from the account and do with it what they wish. If the employee chooses to leave the company prior to end of the lock period they forfeit the money in the account and it is returned to the employer.

5.Should the employee be entertained by other opportunities while in the lock period, they will find it highly difficult, if not impossible, to let go of the fund they have been building.

It is always more cost effective to prevent a fire than to fight one. Keeping your key employees through the use of a locked-in bonus program will help your company maintain a strong bottom line. To find out more about this program or to see how it may fit with your business contact Deboski & Company today!