Workplace

How do you identify key employees in your organization? Better yet, how do you define "key employee"?

A well-run business likely has many people contributing to company goals. However, even in an exceptionally well-run business, there are usually one or two employees who truly make the business run efficiently and profitably.

Although it may be easy to identify a company owner as a key employee because of the amount of time and capital he or she has invested in the company, defining other key employees can be more difficult because of the various roles they may play. Usually, a key employee is someone you would go to when a job needs to be done quickly and efficiently. This person could be a chief financial officer, foreman or administrative assistant who has been with your company for a long time.

This formula can help you establish a key employee's value so you can reward that employee appropriately.

Rewarding key employees may mean the difference between success and failure of a company. But how do you place a dollar amount on the value of a key employee? The formula shown in the figure can help you establish the correct value so you can create a policy to help protect your company in the event you lose a key employee because of a job transfer, termination, death or disability.

Once you establish the value of a key employee, you can determine that employee's value to your business for compensation purposes and the effect the loss of that employee would have on your business.

The formula in the figure also can help you establish extra incentive bonuses, supplemental compensation plans, and other perks to motivate and retain your key people. For many high achievers, salary may be one of many factors in job satisfaction. Ownership in the company, profit-sharing and other rewards may keep your key employees from becoming your competitors. Also, simple recognition on a regular basis may offer the least expensive reward and return to keep key employees happy.

In addition, the formula can help you evaluate your loss potential and protection needs in the event of the loss of a key employee. Almost every company has insurance coverage on the buildings, machinery, tools and vehicles that produce its products, goods and services. However, few companies have considered insuring their key employees.

A well-planned and documented key employee strategy can mean the difference between surviving the loss of a key employee and prospering through a difficult period.

For more information or an online calculator to help you determine key employee values, please visit www.financialsolutionsmidwest.com.

Brian Heckert is president of PENFlex Services Inc., a business consulting firm with offices in Nashville, Ill., and Peoria, Ill.