How to Keep Your Most Valuable Resource Amid the Great Resignation

By J. Tyler Thompson, CFP®, CEPA®, AAMS®, WMS®

Almost every business leader has experienced the pain of losing a valuable employee in recent months as the low unemployment rate and restlessness on the job contribute to the Great Resignation.

With the unemployment rate hovering at just 3.9%, there are about 5 million more job openings than the number of people looking for work, The Wall Street Journal estimates. Nearly half of people who are currently employed are also actively looking for another job, a recent survey found.

The highest resignation rates are among people between the ages of 30 and 45, according to the Harvard Business Review. Those workers are in the sweet spot of having some career experience and sophisticated skills without the highest salaries that the most seasoned professionals can command.

What’s an employer to do?

Business leaders should consider offering retention bonuses or larger than usual pay increases to keep their most valuable resource — their highest performing employees — from looking around for another job.

Enhancing the benefits package can also help deter defections. A more generous match to 401(k) retirement savings plans, better health insurance plans with lower deductibles and copays, and extra vacation time or paid time off can incentivize employees to stay.

Another tool is a Nonqualified Deferred Compensation Plan (NQDC), which is more commonly known as a “golden handcuffs” plan. These allow employers to award bonuses, wages and other compensation today but defer the actual earnings — and the income tax on the earnings — to another year in the future. In order to receive the money, the employee must still work there in that future year when the compensation actually pays out.

In addition to incentivizing valuable employees to stay right now, NQDCs can make your company more attractive to a potential buyer because it gives them confidence that the best performers will stick around once the acquisition closes. It can be meaningfully accretive to the valuation of the business, and it’s also a quality businesses practice for maturing companies. NQDCs can be invested in a wide variety of vehicles such as life insurance or other investments.

That said, one downside to NQDCs is that pass-through entities can’t recognize the tax deduction for the contributions to employees until the money is withdrawn from the NQDC plan in the future.

Another way to encourage valuable employees to stay put is through an Employee Bonus Plan. These have similar goals as NQDC plans, but function differently. The company simply places restrictions on the funds for a certain amount of time to incentivize people to stay — for example, a bonus may be cut into thirds and spread out over three years.

Employee Bonus Plans give companies an immediate tax deduction for these contributions, and the employee has to recognize the income and pay income taxes on the bonuses. The investments are usually done through a life insurance product that has great tax advantages if the employee sticks to the plan over the long term. And it may be a less expensive option than the NQDC.

If you would like to learn more about other financial planning tools and instruments that can help your company retain valuable employees, please reach out and we’ll find a solution that might be a right fit for your business.

Views expressed are those of Tyler Thompson and not necessarily those of Raymond James & Associates and are subject to change without notice. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision. Past performance is not indicative of future results.