What Is a “Key Employee”?

Importance of Key Employee
When discussing exit planning, you’ll often hear the phrase: key employee. In fact, the term key employee comes up a lot. As Advisors we often say that…

  1. Key employees are critical to a timely and complete exit
  2. Key employees should be retained by the Seller at all costs
  3. Key employees can either help or destroy a Seller’s eventual exit.

But what is a key employee, and how do you identify them in your organization?

A key employee is an employee who tangibly contributes to the success of the business above and beyond reasonable expectations and duties. Key employees not only do their jobs, but they do them well, and go far beyond what their normal duties and responsibilities entail. For example, a sales rep who always meets his goals and occasionally exceeds them is a good employee but not a key employee. A sales rep who always exceeds her goals, creates a sales script that improves the performance of other reps by 20%, and is the primary driver of company referrals is likely a key employee.

How do you identify key employees?

Key employees usually have the following characteristics:

  1. Key employees contribute to the company’s value: directly, significantly, and positively. They regularly exceed expectations in fulfilling their duties and responsibilities. They are not afraid to make important decisions that improve sales, profitability, product development, and other critical business drivers.
  2. Key employees participate in the company’s strategic future meaningfully. They have a vision for the company’s future that is evident in the ideas they provide and the creativity they use to solve problems.
  3. The loss of key employees damages the business’s performance in the short and long term and can lead to the loss of clients, vendors, and cash flow.

The most common error that business owners make when identifying key employees is confusing an employee they like, for a key employee. Many business owners include office managers, bookkeeping personal, and CFOs on their lists of key employees. However, most of these inclusions are wrong. Likeability and loyalty, while being great and admirable qualities, do not make an employee a key employee.

A good Advisor can help you identify the key employee(s) in your Company. Once you and your Advisor have identified the key employees, your Advisor can work with you to retain those employees in order to maximize your Company’s worth.

If you’re interested in identifying key employees in your company and figuring out how to best CFOs them, please contact us for a free consultation.

By | 2019-09-13T10:06:23+00:00 September 13th, 2019|Blog|