By Ted Pincus
Whether you're in PR agency management or heading the PR staff of an organization, one of the most frequently recurring nightmares disrupting your sleep nowadays must be
employee retention.
If employee relationships are the glue that keeps your clients, or that maintains the rapport of top corporate management, what guarantees that the employee will stick for the
long term?
First, consider the scope of the problem. Turnover is a chronic dilemma. According to the latest Stevens Gould Pincus survey of 150 top PR agencies, annual staff turnover is
now more than 20%, and more than 24% on average for larger agencies. The prospect of a fifth of your investment in recruiting and training walking out the door every year is
staggering. Couple this with the incalculable damage to precious client or departmental relationships, and you have a serious threat to growth, let alone survival.
With that as a backdrop, here's a new concept that might provide a novel kind of loyalty insurance policy: a two-phase bonus system that offers a continuous incentive and a
compelling reason for key employees to remain on board year after year.
Look at it this way: When do most employees exit? On Jan. 2. Why? Because they've collected their year-end bonus and are dazzled by some new offer they've been pondering. To
begin fashioning a loyalty insurance policy, consider the following tips.
*Dangle a carrot. Create a carrot that not only is potentially lucrative, but that also enables the employee to share the entrepreneurial risks of running a business with you.
In other words, while year-end bonuses are as old as the hills, they're always looked upon as gratuitous frosting and based on arbitrary judgments.
Instead, why not base your bonus system on success? For a PR agency, it means designating a set percentage of the agency's pre-tax profits as a bonus pool for senior or key
employees on a basis pro rata to their base salary. For a PR department, it means arranging with corporate management a set percentage of the corporation's pre-tax profits
(obviously a far smaller percent than among agencies) to be allocated for the department's senior bonus pool. That percentage (let's say 10% for an agency and a fraction of 1% for
a corporation) then becomes a powerful carrot--a goal that the employee himself can help attain.
*Think beyond New Year's Day. The key to this system is its two-phase aspect. Instead of bonus distribution at year-end, the agency or company informs each participating
employee in February of their second year about their entrepreneurial bonus share amount, which is placed in a special interest-bearing fund and not taxable to the employee in
year one. Then, in year two, at the conclusion of each quarter, each employee receives a check for one-fourth of the bonus, plus accrued interest (minus the usual withholding). If
the employee remains on board for the full second year, he/she will receive each of the four quarterly cash payments. Thus, rewards will always be in direct parallel with those of
the owners. And if the employee were to leave during that year, he/she would forfeit the remaining quarters of the funded bonus allocation.
The thing that makes this system a continuing incentive to stay in place is that, by the time an employee is collecting the four quarterly payments, he or she has also earned
three or four more. All it takes is to stick around for the payoff ad infinitum.
*Anticipate slow adopters. What's the price of this policy? What premium is needed? A one-time payment. Obviously, if your key employees are accustomed to year-end bonuses and
this year you announce the new system, their first response will be: "Wait a minute. Does this mean you're skipping this year's bonus?" Quite the contrary. In explaining the new
system, you must assure them that this year's bonus will not be linked to profits; it is being earned as you speak, and will be paid as usual before New Year. At the same time,
it's important to make clear that in real-life entrepreneurial arenas, nothing is guaranteed. If you take the risk with top management, you can win commensurate rewards as the
equity holders. If employees have any gumption, they'll see the plan as an opportunity in their professional life.
And, as for those without the gumption, well, maybe they're not worth the glue needed to make them stick around. PRN
CONTACT:
Ted Pincus is a managing partner of Stevens Gould Pincus. He is also a business columnist for The Chicago Sun-Times and an adjunct finance professor at DePaul
University. He can be reached at [email protected].