The musical Cabaret includes a song confirming that “Money makes the world go round, the world go round, the world go round.” If you’ve got the right the people doing the right things the right way the right number of times, then you’re going to be making money (profits if you prefer) and the world will be going round.
As your profitability increases, a number of other concerns will begin to develop. In a family owned business, you’ll begin to accumulate a sizeable estate. Then there will be heirs. Then there will be estate taxes; and you’ll need money from somewhere to protect what you’ve worked so hard to put in place.
It takes money to make money. So, you will need to reinvest in the business to keep a strong financial position. If you want to maintain your human capital in the business, you will need to reinvest in them with some form of retention plan.
Sometimes an owner or CEO will take exception to profit sharing retention systems. Usually, their thought is “We (or I) paid out much more than I expected to when I set this system up.” I most recently heard this from one of our Chicago clients, whose profit margins required an additional retention contribution of $300,000. He was not happy when he called to tell me about having to pay out the additional $300K. I listened while he vented, and then asked him a very simple question. “Gary, how much more did you make than you thought you would?” His reply, delivered in a much softer voice, “was $1.2 million. Maybe it isn’t such a bad deal after all.” When structured properly, the “paid too much” regret is only possible when the overall profit level also greatly exceeds expectations.
Talent is always in short supply; so once you have found it, never let it go, even if it means coming up with some creative ways to compensate people for their contributions.
So, here’s the deal. Get the right people and get them doing the right things the right way the right number of times. You’ll have a sustainable high performance culture that can last for generations of leaders still to come.
