Strategies to head off the loss (and expense) of losing great employees
If it hasn’t happened yet, it probably will. You’re at risk of losing a key manager or employee.
Landscape and lawn care businesses are highly portable businesses, and sooner or later just about every one of them will lose a key employee to resignation. However, few companies have prepared an action plan to handle the loss of a seemingly indispensable manager or worker, one who, perhaps, decides to go it alone and start their own company. They may even decide to compete against their former employer.
In many service businesses when an employee with proprietary information – relationships and revenues generated from key accounts, types of services supplied at each location, etc. – decides to give notice, they’re immediately shown the door; no further notice is required. The assumption is that an employee possessing critical company information may solicit accounts away from their former company, especially if they’re allowed additional time to pour over sensitive company records.
Jason Bornhorst, president J & B Design Group LLC, Hilliard, Ohio, says landscape professionals need to ask themselves two fundamental questions: “Do you have an employee retention problem? And, if so, are you it?”
Bornhorst points out that the vast majority of landscape companies are family-owned businesses, and inherent within family structures is the right of ascension of family members to the top jobs.
“Sooner or later,” says Bornhorst, “all key employees ask ‘Where is my future?’ It’s just good business to have an answer prepared. From the moment you hire a talented employee you need to communicate your plan for longevity. Develop a five- to 10-year plan for each key employee, set goals and incentives and develop a career path for each.”
Audrey Bloom, an instructional designer and owner of Duly Knowted LLC which offers knowledge training and transition planning for a diverse clientele ranging from John Deere to Caesars Palace, concurs with Bornhorst’s assessment.
“I recommend early and ongoing conversations with managers and supervisors about their career goals and longer-term interests. The owner acknowledging up front (to himself) that great employees won’t necessarily stay with their business for the longer term. Knowing a high-potential employee’s interests makes it possible to accommodate those interests and actually extend the time they spend with you. Building strong, fair relationships with employees increases the chances of fair behavior if someone does break off,” says Bloom.
The Moonlighting Employee
Whether you’re a laborer or manager, you work under an employment contract with your employer – it may be implied or explicit – but it’s steeped in law. Before venturing out and working a part-time job, better ask your employer about the policy of the company on moonlighting, or you may lose more than you gain.
Your employer may consider that allowing key personnel to work a second or part-time job might infringe on company confidential information, or may decide it is a safety issue if you operate equipment or drive vehicles when working in your primary occupation. It may not seem fair, but, depending upon your written contract or an implied contract (including, bulletin-board postings, past practices, workman’s comp, employee manuals and even insurance policies) together with various state laws, you may not be allowed to work outside of your full-time position.
Many employers also fear that company materials might be “borrowed” from time to time or that equipment might be “loaned” without the company being notified.
On the other hand, some employers don’t mind an employee moonlighting, as long as the work does not directly compete with the company’s services. For instance, a lawn care company that does not mow, might allow employees to cut clients’ lawns providing that they do it with their own equipment and on their own time and that the employee makes it clear that the company is not responsible for the work.
Clearly, the best policy is to discuss these critical points at the time of hire and to follow-up with continued discussions. From a legal perspective, it is much better to include this in writing, either within a personal contract or within a non-compete agreement.
Not for everyone
Bornhorst, who is a member of the Ohio Nursery and Landscape Association’s Board of Directors, continues, “Not every employee with great skills wants to start their own business. Not everyone is cut out to put up with the stress of running a business. But some are. As an owner/manager you must get a sense of which employees are comfortable working within the company and establish a direction for them to reinforce those goals that they aspire to. And when someone comes to you and says they’re thinking about leaving, you’ve got to decide if they’re serious, or simply using the threat as a bargaining tool. That’s why you’ve got to know your employees and their motivations.”
Bloom adds that earlier rather than later the business owner should be thinking proactively about ways to partner with someone who is likely to break off and has the right fit of attitude, integrity, energy and talent to do it.
“For example, are there opportunities to share resources, equipment, parts of the business?” she asks. “Are there specialized services this individual would be skilled in providing and managing that your business is not, something like running a business within the business. If retirement is on the horizon for the business owner, could the employee actually become a part of the succession plan?”
Recalls Bornhorst, “I was working for a great guy and he kept promising me that I’d have my chance to take over someday. But one day I was 30 years old and I started thinking about where I might be at 40. And, when it became apparent that he was thinking in terms of me buying him out, coming up with maybe three-quarters of a million dollars, I knew it was time to move on. We sat down and made a gentleman’s agreement and decided that a few of these clients would be happier with me.”
Bornhorst went on to work for another company that had him sign a two-year non-compete, which he completed after leaving their employ.
“Six months after starting my business, and years after leaving them, their CEO called and threatened to take me to court, claiming that I had taken away an account. Nothing could have been further from the truth. One hundred percent of our business has been ours from scratch. We built our business by providing excellent work, not by soliciting someone else’s accounts.”
Bornhorst doesn’t put a lot of weight on non-compete clauses and says he would never have any of his employees sign one. He believes it’s better to build an atmosphere of trust, not intimidation and, “always keep the lines of communication open.”
A case for non-competes
Bloom disagrees, somewhat, saying that a non-compete doesn’t seem like a bad idea.
“I think it becomes more difficult to threaten or actually take someone to court for stealing customers (as one example) if a non-complete hasn’t been included in an employment agreement,” she says. “Assuming a non-compete is included in the employment agreement, it needs to be discussed with the employee and periodically reviewed. It can’t just be another piece of paper.
“Have discussions about: What does the non-compete actually mean? Does it include copying files, or customer names and addresses, checklists and suppliers? What does ‘company confidential’ mean? Clearly explain your expectations,” says Bloom.
Glen M. Lyon, business attorney and partner at McGregor and Lyon LLC, Atlanta, Ga., explains the ability of a non-compete to stop former employees from competing using proprietary information in this way.
“The most common way to protect against this is a comprehensive, but enforceable agreement containing certain restrictive covenants such as non-competition and non-solicitation. Absent that, you would have the right to protect your company’s trade secrets if they qualify as such under Georgia law,” says Lyon.
“And you may have a small claim if the employee began competing while still employed, but that would not stop him from competing after he has left. Otherwise, the general rule is that employees may freely compete after they have left employment.”
Non-compete clauses are subject to state law and so the degree of effectiveness and possible penalties varies. The general thinking is that any non-compete cannot be so restrictive as to prohibit a person from earning a living. Probably, the most effective component of a non-compete is the implied threat of litigation, which can get very expensive.
Being sensitive to key employees’ cues will help informed managers anticipate when a person might be looking to change.
Bloom continues, “When someone leaves to start their own business, it might, but shouldn’t come as a complete surprise. Look for signs.”
These include, how readily does the individual share information. Ideas for improving the company. What they are learning.
“Of course, the owner needs to ask and make sure employees understand their ideas are welcome. Someone who is too eager to learn the company’s business, perhaps too quickly, might be a sign that they are considering leaving the company,” says Bloom.
Employee turnover and the loss of a key employee should be planned for, says Bornhorst. “Management should confront the realities; since 2000, when I started thinking about this, 19 of the 22 designers that I personally know have left their employer. During the recession, many of the larger companies downsized key employees to help cut costs, and most of these people couldn’t find work so started their own businesses. So it’s not always what the employee desires but what situation occurs.”
An expensive loss
Losing a key employee is more expensive than most people realize. Connie Hampton, Hampton and Associates, Scientific and Executive Search Services, explains how the expense of losing a key employee is determined.
“First calculate separately the hourly and weekly cost of fully loaded payroll costs (salary plus benefits) of the vacant position. Please note that the costs of time and lost productivity are just as important and real as the cost associated with paying vendors, consultants or temporary staff. All of these costs will affect the bottom line. These costs will reach 150 percent or more of the employee’s annual compensation. The cost will be considerably higher (200 to 250 percent of annual compensation) for managerial and sales roles.”
There’s a narrow window of opportunity to learn from a departing employee some of the factors that led them to leave their employment. Bloom says that this key time, between when the employee has made up their mind to depart and the actual walking out the door, can give management a wealth of information.
“Most of the time, whether employers realize it or not, departing employees hold information that, for a variety of reasons, is not well- documented or organized but carries high value to the company nevertheless,” says Bloom. “Information can take the form of best practices, customer information, specific skills, equipment know how, etc. It’s also the time employers need to be especially wary about theft of confidential information, but my sense here is that if client lists, training manuals, sample contracts and so forth are going to be ‘borrowed,’ that’s happened much earlier.”
Bloom advises there are software programs that can detect when proprietary information is being copied in the office. Most digital copiers have memory discs that can contain sensitive information. There is also software that can eliminate these threats.
Sweetening the deal
Because losing a key employee can be very expensive, both in money and information lost, many companies will offer key employees financial incentives and benefits, and tie these to longevity and other key metrics. These may include (merely examples): profit sharing, after a period of five years; paid health care benefits and life insurance, after a set time; matching contribution on retirement accounts or 401k accounts, when reaching senior management levels; even partnerships, when that employee is essential to the continuation of the business. The incentives should be planned and known and readily achievable for top-flight employees. Offering a perk, like one of the above, at the exit interview will only be seen as desperation, or worse, blackmail, by both the employer and the employee in the long term.
A key employee is a valuable asset; no less so than operating expensive equipment that has careful maintenance plans in place to keep them in top working order. That same conscious effort should be given in retaining key personnel by regularly communicating and establishing obtainable goals and incentives. Even then, losing a key person is probably going to happen.
Learning from that experience, through exit interviews and discussions with employees, or perhaps bringing in professional help, such as Bloom’s Duly Knowted LLC, will help develop strategic plans to ease the burden of that loss.
Mike Ingles is an experienced freelance writer and editor who lives and works near Columbus, Ohio. Contact him at [email protected].