This is a thought leadership article by PrimeGlobal member firm K·Coe Isom which looks at alternative compensation plans in particular how new compensation methods incentivize employees and create cash flow flexibility.
Today’s businesses are seeking creative, new ways to establish or maintain a competitive advantage and secure performance goals, but without the drain on precious cash flow delivered in the traditional forms of bonuses, spot awards, and profit-sharing funds.
Why? For some businesses, it’s a matter of needing more cash for debt commitments and survival. For others, freeing up cash flow can help invest into an expansion, transition, or major technology or equipment upgrade. Whatever the reason, companies are looking for ways to manage and increase cash flow flexibility, without taking a hit to employee salaries and incentives.
Danielle McCormick, Partner at K·Coe Isom said "Businesses are conscientious of the negative effects that cutbacks can have on employee morale and retention. But the reality is, there are often complexities in business projections that force owners to look for areas where ‘something’s got to give.' This usually comes as a cutback or elimination in order to meet their business goals. Unfortunately, these cuts typically fall on the ‘bonus’ employee compensation and incentive areas first. In the end, these decisions disrupt productivity and impact long-term retention of key employees.”
There are a number of alternative compensation options and customizable plans to evaluate for each business, including:
Deferred Compensation Tactics – used as an incentive plan; awarded to officers, key managers, key employees
- Cash-based deferred compensation
- Phantom stock plans
- Stock appreciation rights
Qualified Retirement Plan Options – motivates and rewards employees; tax deferment tactic
- Employee Stock Ownership Plan (ESOP)
An advisor can help to assess the advantages and disadvantages, applicability, timing, and tax strategy that will best meet a company’s objectives.
Typically, the first phase begins with a process of discovery and identification of short- and long-term goals. This provides a pathway to identifying potential compensation programs that might be an effective choice.
In evaluating which tactic is suitable and beneficial for your business, it’s important to undergo financial analysis to ensure the recommended option can be implemented effectively. There are many underlying advantages and disadvantages to compensation incentives, so each company should assess the effects applicable to their business structure prior to implementation.
“These incentives are changing the way HR departments are handling employee compensation structure. There’s a real impact happening here – providing new options to tackle age-old business challenges: rewarding key employees for better retention, optimizing cash flow for greater flexibility, increasing the value of the company through higher performance, and attracting top talent with a competitive advantage.” Danielle McCormick, Partner K·Coe Isom
K·Coe Isom is a top 100 accounting firm and the nation's leading food and agriculture consulting firm. With roots dating back to 1932, the firm has expanded upon traditional accounting services to deliver increased value and growth for clients through comprehensive policy-to-plate strategies and specialized advisory in the areas of sustainability, federal affairs, land conservation, wealth management, succession planning, managed accounting services, strategic advisory, and talent strategy - to name a few. K·Coe Isom provides insight and solutions for the many aspects of food and ag, including commodity crops, permanent and specialty crops, livestock and dairy, food and beverage production and manufacturing, equipment dealerships, beer distribution, and biofuels. Additionally, the firm advises and supports clients in the manufacturing, construction, technology, and banking industries. The firm serves domestic and international clientele from coast-to-coast office locations. To find out more about how we work together to serve our clients, watch our video.Learn more