For years private companies have struggled with how to create effective plans that will reward, retain and provide true incentives for key employees. The default has been "off-the-shelf" deferred compensation or deferred payment plans sold by insurance agents, investment sales personnel and financial planners. These packaged products have been, at best, only modestly effective in achieving owner objectives.

From the prospective of the business owner, employee benefit plans are both a significant cost to the company and a significant benefit to the employee and family. Unfortunately, from the prospective of the employee, benefit plans quickly become a part of the landscape and in many cases are viewed as an entitlement rather than a benefit voluntarily provided by the employer. As this is true of group medical and group insurance benefits, 401-K and profit sharing plans, it is also true of the vast majority of packaged incentive plans purchased by private companies for key employees. A different and more effective approach is required.

For the past ten years we have been assisting private companies by designing incentive plans that are customized to accomplish the specific objectives of the owners of those companies and the objectives of the impacted participants. Out of this experience has developed a defined protocol that results in plans that in fact create incentive, that in fact are appreciated by the participants, and that in fact help all parties accomplish their specific objectives. The components of this protocol are as follows:

• Helping the owners of the business define and clarify the specific objectives the plan is designed to accomplish. While there are common objectives (an increase in enterprise value) there are typically specific objectives that vary meaningfully from one business to another.
• Meeting and interviewing the employees who are to participate in the plan. If the plan is to provide incentive, it is both logical and critical to understand what motivates each participant. While financial gain is a common motivator, the timing and character of the reward varies dramatically. Additionally, many employees are motivated by factors in addition to money. Rather than being relegated to an uninvolved recipient of the boss’ decision, this step creates a sense of ownership and involvement on the part of the participant in the plan itself.
• Using historical data and input from the company’s CEO and frequently from the CFO, projected business financial models are created. A base case represents a reasonable projection of future business performance. At least two other models are created: a better than base case, a worse than base case. Different plan design alternatives are then pushed through the models to compare both the cost of the benefit of each alternative and the amount of benefit to be received by the employee in each of the three scenarios. This approach enables the owner to understand the impact of various designs and to make better decisions with a greater degree of confidence.
• A detailed outline of the design of the plan is created and expressed in terms that the participants will easily grasp.
• The tentative decision on the design of the plan and all of its detail is then reviewed with the company’s legal counsel and if necessary modified by their considerations. An agreement is drafted, edited, and finalized.
• A roll-out meeting is then held with the participants to explain in detail how the plan works, how different business results drive different levels of benefits, and to inform the participant on a confidential basis of the specific benefit or grant applicable to each participant and to provide a formal copy of the plan for review by the employee and the employee’s attorney if so desired.
• An administrative process is created under which periodic reports are given to the employee which show the increase in the value of the benefit that is being accrued. The frequency of report varies from a maximum of once per quarter to a minimum of once per year. These reports not only define the amount of benefit the employee is accruing but also remind the employee of the fact that the benefit is dependent upon the results of the company that are the metric that drive that benefit.

A sufficient amount of time has elapsed to enable the results of these plans to emerge. Simply stated, the customization of plans using the above protocol works. It is a far better approach.

Donald Bielen, Principal of The Rainier Group, a Regional consultancy that has helped more than 700 privately held companies in the Northwest and beyond develop and implement living transition plans. Don can be reached at 503-229-4488 or dbielen@rainiergroup.com.

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Welcome to our new workshop calendar which offers a range of workshops and events in various locations from now through May '05.

For the sixteenth year in a row, the 2004 Excellence in Family Business Awards salute the achievements of family businesses in the areas of innovation, economic and community contributions, commitment, and the planning and communication systems that nurture both the family and the business. The Austin

Family Business Program and our distinguished sponsors request the pleasure of your company at this year's award banquet, to be held on November 18 at the Oregon Zoo, as we pay tribute to the most pioneering and successful family businesses.

Retaining the company's key employees is one of the biggest challenges business face today. In the December 1st workshop, Don Bielen of The Rainier Group, Inc. will discuss key components of a proven process that creates and maintains incentive for the key employees and are effective in retaining top talent. The presentation is followed by a panel discussion with a legal expert in employee compensation, a human resources expert, and a business owner with demonstrated success in employee retention.

The one-day workshop in February is geared specifically toward family agribusinesses. Business Killers workshops focus on avoiding the six mistakes that can destroy your business and your future.

Once again, we will have a luncheon, produced jointly with the Portland Business Journal. This same event sold out early last year. The Austin Family Business Conference for family businesses will again be held at The Resort at the Mountain and will be followed by the newly launched Family Enterprise Research Conference for researchers and academics in the family business field.

For more information on workshops including date, time and location visit: www.familybusinessonline.org/programs/workshop_calendar.aspx

You can also register and pay online. We look forward to seeing you and your family.