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4 Ways a Small Business Can Hold on to Key Employees

Daniel B. Kline, The Motley Fool

Before you make a major effort to keep an employee from leaving or lock the person up for the long term to keep him or her from even considering going elsewhere, you have to really consider the value of the person. Is this worker essential to your ongoing success? Is the employee key to your succession plan or valuable in some other way that makes it logical to pull out all the stops to keep him or her on board?

This is not a time to be emotional. You may like the person and enjoy working with him or her. That, however, is not the question being asked when you consider going to extreme lengths to retain a key employee.

Take a deep look and put a value on the person. If that value is high enough that the person may be very hard, if not impossible, to replace, then consider these options.

Workers sitting around a table filled with charts.

If you have an employee whose loss would cause major damage, lock that person up if possible. Image source: Getty Images.

1. Give the employee a share of the profits

Money motivates people, and one of the reasons employees leave is to get more of it. You may not be able to meet the salary levels that larger competitors can, but you can cut key employees in on your profits.

Doing this is a major decision, because a worker who gets a meaningful share of profits will expect access to your books. He or she will also want to be part of discussions about investment decisions that lessen profits in any given year.

2. Make the person a partner

In some service businesses, it makes sense to have key contributors become actual partners in the business. This is logical when the employee in question has customers who are loyal to her or him and not to the overall business. This only makes sense if losing this worker would result in a significant portion of your business walking out the door.

3. Give them equity

Sharing profits directly doesn't work when a company either isn't yet making a profit or is in a growth phase. But if you're investing heavily to grow the business so you can sell it one day, then giving a key employee a stake in the company makes sense.

If someone owns a piece of the pie, he or she has an incentive to stay around. Of course, you have to be careful to structure this so that the person can't earn equity and still leave.

4. Make the person your successor

You're probably not going to live forever, and even if you do, you may eventually want to do something else for a living. It's possible to work out a deal in which a key employee buys the company from you at a discount or with you financing the deal. This type of agreement can be sweetened by having the person earn equity if the company and/or the employee reaches certain goals.

Be careful

Only use these strategies when you absolutely have to retain the employee. You worked hard for your company and don't want to give away profits, equity, or even the entire thing on a casual basis. But if you believe you have the right person, do what it takes to lock him or her down for the long term.

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