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Q. I’ve often heard two widely accepted parables in business that seem to contradict each other. The first is the stonecutter who strikes the rock 99 times with no result, but on the 100th blow, the rock splits. Of course it wasn’t the 100th blow alone that split the stone, but the 99 that went before. The message is persist. Stick to it even when you see no results. The second is the oft quoted definition of insanity which is, continuing to do the same thing again and again and expecting different results. The message is, if what you are doing isn’t delivering results, change what you are doing. Which is correct and how do you know whether to persist or change direction?
A. The answer, of course, is that both are correct, depending on the circumstances. To be successful in business, or any other endeavor for that matter, you have to be willing to persist when times are tough. Like the stonecutter, you have to be willing to continue working hard through patches where there are no visible results. At the same time, success in business requires that you be willing to change course when the current path is not getting you where you want to go. The question is, when to persist and when to change course.
Q. I have recently been hired as an analyst by a local business. In a week, I have to give my first presentation to management. Do you have any tips that will help me make a positive impression?
A. Analysts can bring tremendous value to a company by identifying opportunity that would otherwise be missed. However, when presenting their findings, analysts sometimes get wrapped up in the details of how they did their work. This may be exciting for the analyst, but dragging executives into the weeds is most often not the best approach. To ensure an impactful presentation, follow these five tips:
Q. I am just beginning a career as a financial advisor. As I grow my portfolio of clients, I can choose to focus on large clients or smaller ones. Do you have a perspective on which clients might be best to serve?
A. Most people think that large clients (or customers) are best. After all, they represent more revenue and are therefore highly sought after. However, as a practical matter, since you are a new advisor, focusing on landing very large accounts may be a real uphill struggle.
First, most high net worth clients will already have a relationship with an advisor. It could be difficult to dislodge them from that relationship, especially since we have been in an up market for a number of years, so the performance of the prospective client’s portfolio with his/her existing advisor has probably been fairly good recently.
Q. I own a small business with about $7 million in revenue. I am hiring a very senior person and want to give her an equity stake in the business as a part of her compensation package. However, if I award stock to her, I’ll be giving away a portion of the existing business and she had nothing to do with creating that value. Is there a way for me to reward her only for future value that she will have a hand in creating?
A. Yes, you can accomplish this. The first thing you will need to do is establish a mechanism for valuing your existing business. If you are comfortable doing this yourself, great. If not, you will want to reach out for some professional help. We prefer valuation methods that consider the profitability of your business, but for simplicity sake, let’s say that you decide to value your business at one times revenue. Obviously, that would make your business worth $7 million.
If, for example, you were to give your new employee 10 percent of the outstanding stock of your company, you would be giving her $700,000 for coming on board—that’s quite a signing bonus, not to mention the tax effect. One way to avoid this is to allow her to purchase the stock. In this case, she would pay $700,000 for 10 percent of the outstanding stock, which is its fair value. You wouldn’t be giving away anything and she would have the equity stake you want her to own, having paid what it is currently worth.
Q. I saw a television commercial from a local law firm. It said that employees could get “back-pay” for overtime hours that they worked, but for which they were not compensated. I have been in business for ten years and have about 30 employees. Almost all of them are salaried. Is there any risk that I could have to pay for overtime hours previously worked?
A. The short answer to your question is, quite possibly. When you say that almost all of your employees are salaried, we assume you mean that you have determined that they are exempt from receiving overtime pay. Your determination may be correct. On the other hand, it could also be incorrect. If this is the case, you risk fines and/or having to provide “back-pay”.
One of the most frequent errors we see in small companies is employee misclassification. This is when management wrongly determines that a worker is exempt from overtime and other rules under the Fair Labor Standards Act (FLSA) or incorrectly classifies a worker as an independent contractor. (Independent contractors are also exempt from overtime pay.)
Q. I own a small business with about 10 employees. I have always paid my employees a salary or an hourly wage depending on whether the job is exempt or non-exempt, but I’m considering implementing an incentive compensation system. Do you think this is a good idea? If so, do you have any tips for setting up such a system?
A. We are strong proponents of incentive compensation systems. We’ve used them successfully both in companies we have run and with our clients many times. In our experience, people generally do what you incent them to do—people will act in their own best interest.
To be sure, there are incentives that go beyond compensation. The possibility of promotion or expanded responsibility can be a strong incentive. The desire for continued employment can also be a motivator. The hope for recognition drives some to perform. However, in many cases, we find that incentive compensation is a wonderful motivator for employees. Further, if you design the system well, when the employees earn large incentives, the company has also done well. Therefore, you’ll have the money to pay the incentives.
We think incentive compensation systems are a great idea. However, a word of caution is in order. There is little in business that is more powerful than affecting an employee’s pay. A well-designed system can be very positive, but I poorly designed system will do more harm than good. When setting up your system, these five tips will be helpful.