Coming out of a downturn strong (and how long-term incentives will be key to doing that)

May 28, 2020

Coming out of a downturn strong (and how long-term incentives will be key to doing that)

One of the things that we have seen time and time again, as advisors to a wide range of companies across many sectors, is that future success after a downturn is not measured by how you weathered the initial storm, but how you came out the other side.

Frequently, success is measured by costs saved or margins retained. Little or no thought is given to the “people” aspect of the downturn. In the worst cases, the prevailing attitude from management is that the workforce must be alright as “at least they have kept their jobs”.

Whilst it may be true that in the immediate aftermath there is a gratefulness for employment, this does not automatically translate into perpetual gratitude. Many workers will remember and retain the words, actions and behaviours of management during the more difficult moments and use them as the reason and motivation for moving on.

In addition, perceived poor treatment during this period can have the effect of demotivating the best people in the workforce. This is an important point as, no matter their role, it is these people who are the real engine of a business. These are the people who are usually focused on the success of the company (not their own advancement) and are willing to go the extra mile to help it get places. The people who get their colleagues to deliver more and will often sacrifice their own time to put more energy into the success of the business.

We would always recommend two steps for any business who wants to not only retain their best people but also make sure they can start to help delivering growth as soon as possible.

Firstly, the business should conduct its own “people audit” as part of its plans to get back to growth. Even where decisions have been made genuinely for the benefit of the business as a whole, messages and intentions can be lost in the speed of change as recovery measures are put in place.

Secondly, in order to further tie-in the interests of both the key individuals and the wider workforce to those of the owners and managers, we would recommend introducing some form of long-term incentive. This may be cash or equity, it may be for a bespoke group or the entire workforce and it may come with all manner of performance conditions attached.

Research has shown that the inclusion of any long-term incentive plan improves retention by up to one third – a crucial factor when competitors start to look at your workforce in order to help rebuild their business.

In addition, “paper based” long term incentives, which require no upfront cash cost by the business, can be an effective way to reward and remunerate. Performance conditions mean that the workforce is only rewarded if results are delivered.

Whilst there are costs associated with setting up these types of plan, the return over the medium to long-term is likely to far outweigh these – in terms of both performance and retention.

For further information about the issues raised in this article or to discuss any questions you may have, please contact Stuart James.

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