Not Implementing Things to Retain Top Talent

BARRY: Chad’s rules number five: not implementing things to retain and recruit top talent. Not implementing policy or procedures, plans — to retain and recruit top talent. Go.

CHAD: Well, kind of what we were just talking about. You teed it up perfectly with the fact that you do contribute to this step for everyone in the same amount you do, and it’s probably why your business is having the success that it has. Your people don’t want to go anywhere because you’re taking care of them.

And I find a lot where for businesses to grow — and grow at a good sustainable rate — you can’t stay stagnant. You have to be bringing in people. We’re in a very competitive landscape. There are a lot of businesses out there that do offer good benefits. With my individual clients, not my business owners, when I have discussions with them and ask, “Why do you work where you work? Why have you been there so long?” They mention, a lot of times, the benefit packages that these companies have. So you need to have them in place to be able to recruit the top talent you’re looking for.

Now, the flip side is: what do you do once you have this top talent in your company? There are things you can implement. I mentioned earlier how a C corp owner can provide executive benefits or bonuses to themselves. Well, most times you’re providing these benefits to your executives, and there are strategies you can put in place that both provide benefits down the road for them and their families, but seflishly as a business owner, it also is a tool that you can use to keep them with your business. You can set up vesting schedules so they aren’t entitled to benefits unless they stay with the company for a certain period of time. It’s commonly known as golden handcuff strategies.

These tools help in two ways: first, people will want to come work for you if they know you offer these benefits. And then on the flip side is you can use them to to your advantage as a business owner to be able to entice them to stay with you longer.

BARRY: I want to mention two things. Number one, as a business owner, I’ve studied the art of hiring. I’m sure you’re familiar with the cost of a mis-hire. Going through the process of hiring is a pain.

CHAD: Hours spent training and–

BARRY: It’s expensive, yeah. It’s resource-intensive. It’s expensive. And that’s just the pre-hiring. Then you’ve got the hiring.

CHAD: And if they make mistakes. If you got the wrong hire. There’s another–

BARRY: Well, what I’m saying is you have these different segments of hiring. The process of track applications, review applications, interviews just to get someone to say yes is a process. Then they say yes and you’ve gotta start teaching how your business works. Your process, your people, your system, your handbook. And that’s a process. You’ve gotta give them a year to get into the system to see if they’re gonna thrive in your culture. If they don’t, you start over. But that’s not where it ends because you still have all the money you spent to pay them. You have all the retirement benefits you paid them, the payroll taxes, the insurance. There’s a lot of expenses that go into it.

CHAD: You’re add it together. Payroll taxes, etc.

BARRY: Full circle. It’s expensive to have a mishire. There’s books on that that I’ve read and they’re great. So that’s where these things become very important.

CHAD: That could be number 4. Top 10 recommended book list.

BARRY: I’m going to put it down. I have the best book list. I think that’s one of my most valuable possessions, my book list.

So having these tools to retain your people– it’s worth it to build and hire from within and keep your people than it is to go outside the business and risk the probability of a mishire. Chad mentioned vesting schedules, golden handcuffs — there are certain plans you can put in place where benefits are forfeited upon leaving. I have friends who have similar types of plans where they keep telling me, “I can’t leave because this huge bonus at the end of this year. And every year it’s the same thing.”

CHAD: If you’re lucky enough to be one of the 1-2% of employers that still offer pension plans, it’s very hard to get those people to ever go anywhere because pension plans don’t exist anymore for the most part.

BARRY: You don’t want to have people who are unhappy who are staying just for the money, but there are ways to incentivize people to stay by really doing some planning ahead. I thought that was a really good one to bring up.

I had another point to bring up other than mishires, and I forgot what it was. Number 6 — is there anything else to do over on that one?

CHAD: No, I think we pretty much covered it. I mean, there’s a lot of different strategies that could be put in place is probably the big takeaway. It’s not a one-size-fits-all. There are different strategies that could be put in place for different purposes. For different people. You know, we talked on the 401(k) side about the non-discrimination rules, well, when you get outside the qualified plan space, the executive benefit space, you don’t have those discriminatory rules. You can pick-and-choose who receives which benefits. And that’s really where, if you want that CFO to come or that COO or that high level, they’re going to be looking for those kinds of plans.

BARRY: What was it? Did you say these were non-qualified plans or is that an executive–?

CHAD: There’s a whole bunch of non-qualified plans. By non-qualifying, we’re talking about outside of the 401(k), IRA, SEP IRA space where there’s lots of goverment regulations. We could have another video about non-qualified deferred comp plans, and that does allow you to pick and choose who’s going to receive these benefits.

BARRY: I’m gonna put this on the list. It’s on the list.

I would only want to add one more thing. Tying this together to entity selection, because when you’re thinking about how to structure your business — and this will be a whole topic for a different day — C corps, S corps? They’re limited in how they can be structured. Shares are like one of two types. Partnerships and LLCs are very dynamic, very flexible. And they’re predominently used now for a good reason. They’re so flexible. And when it comes to structuring your business to retain people, to attract people, to give them some skin in the game, there’s so many ways to do it. I’m going to bold that on your list becaus I want to talk about that another time. And that’s like vesting and vesting schedules.

CHAD: In the legal selection, the flexibility that these entities provide, flexibility from a financial standpoint. You want your financial plans to be able to breathe and adapt to the changing landscapes. You won’t know what taxes are going to be 10-15 years from now. Tax rates can and do change. We talked about tax-free assets earlier — you have to have that flexibility in there. If tax rates return to half of what they were in the 1950s and 1960s, you’ll have part of your plan that can adapt to that landscape and you won’t adversely be affected by these economic scenarios we have no control over.

BARRY: And especially in this environment where we have so much debt. I think just in the last six months we went up 33% at least. We’re gonna need money. Expect the estate tax to come down. Guarantee it will come down so it can capture more people. Income tax might go up.

CHAD: It expires in 2025, right?

BARRY: It does sunset, yeah. Right now that’s 11-million and change per spouse. Per taxpayer. And it’s not really effecting a lot of people. .01% of the people in the U.S.

CHAD: I might be stepping on your top 10 here, but I think from a financial planning standpoint, I see a lot of people who think, “I’m not gonna get to that number so they’re not planning for it. But let’s say there’s a 35-year-old with a business worth $3M right now. They’re not taking into account the appreciation of those assets before they pass. And so regardless of what that exemption amount is, they’re gonna be over.

BARRY: You’re getting into my top 10 now, but that’s okay, we’re gonna talk about it. I have a lot of clients who are right at that threshhold of the exemption, and it’s like, “What do we do? We’re not subject to tax right now.” But come this November — come November in 4 years — what the hell’s it gonna be? So with that uncertainty you’ve gotta do some planning, because the tax on the excess of the exempion is about 40%. Do you want it to go to the government or your family or charity? That’s kind of what it is. You’ve gotta think about it, but not everybody wants to think about it because they’re so wrapped up in their business or their life.

CHAD: I always tell people there’s 4 unknowns you need to plan for: taxes, what the market’s going to do, how long you’re going to live, and how healthy you’re going to live during that life. Those are the things that really need to be addressed, because those are the things that, regardless of your assets or your account values, one of those things goes wrong and your whole plan is blown up.

BARRY: I agree. That’s what planning is all about. Planning for unknowns and having a framework in place to navigate them–

CHAD: And good unknowns, too. How many kids you’re going to have? How many grandkids? There’s plenty of good unknowns, too.

BARRY: Depending on who you’re talking to, that’s an asset or a liability I guess.