Dave Ciambella

Identifying and Motivating Key Managers to Bridge Succession Gaps
October 4, 2007

In my prior posts I discussed various succession gaps you may be facing and methods for bridging the gap through your key managers. So the question now is:

How do I identify, motivate, and retain managers that will be committed to
protecting and building business value, mentoring your successor(s), or
running the business while you are still looking for a qualified successor
to take over your business?

 First, it is important to realize that: All managers are not created equal!

In a prior post by one of my partners Dan Schneider, he discussed the various types of managers. Because there are different levels of managers – Key Managers, Special Key Managers and Very Special Key Managers – it is imperative you understand each classification of manager is motivated very differently. Motivating and retaining a manager(s) to serve as a Succession Bridge must be done with forethought and care, otherwise the very objective you are looking to accomplish could crash and burn.

Below are a few hints you may find helpful as you consider individuals who could be cornerstones in your succession bridge:

• Key Manager is a loyal, dependable manger who is security oriented.

An example of an incentive that would motivate a Key Manager would be a Supplemental Executive Retirement Plan (SERP) which is a non-qualified deferred compensation plan. For example, let’s assume you are a Key Manager who makes $80,000/year. The plan could state that each year you serve in a bridge capacity 10% of your annual compensation ($8,000) would be set aside for your benefit.

• Special Kay Manager is an individual who would be more difficult to replace. Special Key Managers are typically performance driven individuals.

An example of an incentive for a Special Key Manager would be a non-qualified deferred compensation plan that has two components: one component could be a flat percentage (10%) of annual compensation as described above. The second component could be sharing in a percentage (10%) of company profits above the prior year. For example, let’s assume you are a Special Key Manager who makes $150,000. Let’s further assume the profitability of the company last year was $500,000 and this year it is $750,000. In this example you would receive $10,000 for the first component and $25,000 for the second component for a total of $35,000.

• Very Special Key Manager is more entrepreneurial, is a rainmaker who if he/she left they would impact profitability and would be very difficult to replace. These individuals are typically looking for respect.

One of the ways to respect a Very Special Key Manager is by offering him/her an opportunity to become your partner or an owner in the company. Caution: There are several ways to acknowledge and respect a Very Special Key Manager other than giving him/her actual stock in the company such as Phantom Stock or becoming a partner in a management company. However, there are some Very Special Key Managers who warrant actual stock ownership.

Remember… aligning the incentive with the type manager you are dealing with will have a significant impact upon the ultimate strength of your Succession Bridge!

Posted by Dave Ciambella on October 4, 2007 | Comments (0)