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How to Create an Effective Long-Term Compensation Plan

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As your company grows, you’ll need to find new ways to keep the employees who helped get you there stick around for the next stage of growth. The standard salary and benefits packages will only take you so far, but a long-term compensation plan can keep key workers engaged for the long haul.

“The bigger the company vision, the greater the value of long-term compensation plans for key performers,” says John Paul Caswell, owner of Iron Horse Financial.

Caswell became a specialist in creating such plans by working with his own firm as well as advising many other business owners and clients.  Here’s his advice on how to create a long-term compensation plan that keeps your whole organization in alignment.

Identify What’s Important

Some of the first mistakes organizational leaders make when it comes to long-term compensation planning is thinking it’s all about money, or that there’s a formula that will generate a number that will get key employees to stay, Caswell says. It’s also common to see organizational leaders try to build a one-size-fits-all incentive plan when they need to take a customized approach, he says.

“A great plan is centered around what is important to the person you want to hang on to,” Caswell says. “Get to really know your team and what motivates them. Then you can start building out something that is truly a win-win. It amazes me how much money is wasted on salaries for issues that could be better addressed with more creative comp plans.”

For example, a key employee might want to take a family vacation, but finds saving for it or spending the money frustrating. “Instead of giving everyone a raise next year, buy a vacation property, reward your staff with a week at the property and use the property as a tax deduction,” he says. “Cash flow comes back to the balance sheet and employees come back talking about this great company that they never want to leave.”

Set Incentives

Establishing goals makes it easier for people to understand what behavior is rewarded at an organization, so your comp plan should be incentive-based when possible, Caswell says.

“The visionary of the organization plots the course based on the level of talent that is around them. The purpose of long-term comp planning is rewarding the team that accomplished building something great.”

Incentive-based plans also ensure that when the team wins, individuals win as well, Caswell says. And they protect the company if the team struggles: An organization that implements automatic increases that aren’t tied to performance or other benchmarks may find it necessary to lay people off because those raises aren’t sustainable in hard times, Caswell says.

Revisit the Plan Periodically

When setting benchmarks for key employees to meet, also establish a timeline for reviewing performance. “All plans should have benchmarks and review dates,” Caswell says. Keep expectations of your employees high, but don’t be afraid to adjust benchmarks or timelines as the market changes.

Getting long-term compensation plans right is an ongoing challenge, but it’s crucial for any business, Caswell says. “If you can't compete for top talent or retain great people, the best-case scenario is your business does not grow,” he says. Establishing a smart long-term compensation plan helps ensure that you have the right people in the right place when new opportunities come up.

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian.Iron Horse Financial is not an affiliate or subsidiary of PAS or Guardian. 2017-45454 Exp 8/19

Stephen Loy