Staff and succession case study: manufacturing business
The four directors believed their business to be an employer of choice and had been discussing employee bonuses and share plans for two years. Their succession plan included introducing two new shareholders.
Six weeks prior to the directors announcing their incentives and share plans, three key employees resigned from the business to join a competitor. Two of the employees had been earmarked as shareholders in the business.
Our case study highlights how important it is to follow a structured process when offering staff incentives and shares. A failure to follow through can be catastrophic for shareholders, directors, staff, their families and the business.
- Independent specialised advice
- Staff incentives and share plans
- Succession planning
- The directors had become complacent about staff loyalty
- Previous attempts to offer incentives and shares had failed
- The businesses successors were heavily mortgaged and had little assets and personal earnings to support any business investment
The directors agreed to implement a structured staff value and transition program for their business.
Personal development training
The lack of business management skills of key staff was identified as a major reason why the directors had deferred offering incentives and shares. They considered their staff to be good “technicians” but not ready for business ownership. One of the outcomes of the staff value and transition program was for key staff to undertake business management and leadership training courses.
The directors believed it would be easy to offer incentives and shares to staff. They were unprepared for all the complex and emotive issues surrounding staff management and changing ownership. They agreed to appoint an independent succession planning specialist to facilitate and implement the staff value and transition program.
Successor funding and wealth creation
The program included an innovative funding plan for successors to “self-fund” their business investment. Two employees were offered 5% each in the business and were only required to come up with 10% of the value of their shares.
By offering employees a discount on their share price it provided for an immediate capital gain from their “investment”. The directors believed this would encourage staff to stay and they would see the benefits of becoming business owners.
The directors agreed to implement a 5 step transition process including providing staff incentives and the opportunity for staff to buy shares in the business.
Click here to download this article as a factsheet, which includes our example of an employee share plan.
Or click here to read how OBT works with local manufacturing businesses in our feature business case study. OBT Financial Group Gatton 07 5462 2277.