Retaining Employees Long Term
The need to retain key employees is now more important than ever. According to the US Department of Labor, employees are leaving their jobs at record rates. It is known as the “quits rate” when employees voluntarily leave their job. This generally occurs when employees feel they can easily get a better job elsewhere. Indeed, today there are more job openings than there are unemployed workers.
With so many job openings, employees risk little when they decide to leave their current employer to go elsewhere. The exception to the rule is employees who have pension plans. The reason is the vesting period of the pension plan gives the employee something to lose by leaving. Each year that the employee is vested in the plan is another year of time that the employee has put into the plan. Outside of government employment, there are relatively few jobs that offer pensions.
To attract the employees, many employers are offering higher pay, but that strategy can backfire by turning into a bidding war. Another problem with offering higher pay is that there is nothing to tie the employee to the company long-term. If one company can offer an employee higher pay, then another company can lure that employee away by upping the ante. Many employees will see jumping from company to company as a way to increase their income with every job change. The companies will suffer as the pay higher wages to new hires, then spend thousands training those same new hires, only to see them jump ship for higher wages with the competition.
The real key to long-term employee retention is to simply look at history. The greatest generation came back from World War II and went to work. Most spent their entire careers working at one or two organizations…why??? …because they wanted the lifetime pension.
Smart employers are now offering key employees, executive bonus retirement benefits funded with life insurance policies. The employers attach a vesting period to the benefits which ties the employee to the company for periods of 5 to 10 years or even longer. The benefit to the company is the mitigation of enormous turnover costs during the vesting period. As a non-qualified plan, there is a great deal of flexibility for the employer. The employer and the employee have a written document that details the rules to the plan.
Employers should use executive bonus retirement benefits if the cost of the plan is less than the projected employee turnover costs. This guideline makes the choice a simple business decision.
One huge benefit that CFOs will like about executive bonus retirement benefits is cost control. Employers know ahead of time the total cost of the plan because their contribution is defined when the plan is designed. CFOs will also like the fact that these plans are fully discriminatory. The plans can be offered to select employees and can be customized for each employee. This one feature significantly reduces the overall cost of the plan. Another feature is the vesting period which can be either a “cliff” vesting period or a “graded” vesting period. In either case the vesting period mitigates the financial risk to the company. If the employee stays with the company, the company saves money in turnover costs. On the other hand, if the employee leaves the company before the completion of the vesting period, the company recovers its’ investment.
Without these plans in place there is no limit to employee turnover costs and that can make planning very problematic for the employer.
COOs will also like executive bonus retirement benefits because it helps them run the company without production interruptions caused by key employee turnover.
The job marketplace will favor employees until at least 2035, which is as far out as the projections go, and it could easily go much longer.
It’s important to point out that many “C”-suite executives are also leaving their jobs. One of the reasons is that they have reached, or approaching retirement age and they are looking to slow down. Many “C”-suite employees are finding that they can’t financially afford to completely retire and as a result they are choosing to become consultants in their own industry. This way they can reduce their workload while maintaining a good income to support their lifestyle. Unfortunately, when a member of the “C”-suite leaves it can be disruptive to upper management and costly for the company. For this reason alone, executive bonus retirement benefits that tie these employees to the company can be critical to the overall health of an organization. In cases of publicly traded companies, the loss of a “C”-suite executive can have a negative affect on the stock price of a company.
Long-term employee retention requires long-term planning. Fortunately, the positive results of this type of long-term planning can be seen almost immediately. First, every employee who agrees to the terms of an executive bonus retirement benefit will very likely to stay with the company for the long haul. This mitigates employee turnover for all employees in the plan. It also means smoother company operations, greater employee satisfaction, and increased employee production. Often these components can translate into higher customer satisfaction, increased sales, and higher company revenues.
Executive bonus retirement benefits funded with life insurance policies are the future, and the future is already here, and it is here to stay. Companies that implement these plans sooner rather than later, will have an immediate and enormous advantage in the competition for top talent. When all the benefits of these plans are added up, it makes sense to, at the very least, give them serious consideration. The first step is to ask yourself if employee recruitment and retention is a challenge. If the answer is yes, then the next step is to look at what are the steps the company can take to overcome the challenge. There are many tools in the tool box for employee recruitment and retention. History has proven that the world’s most powerful recruitment and tool is the lifetime retirement income stream. Executive bonus retirement benefits funded with life insurance policies are a cost-effective way to offer this type of benefit to company key employees.