Employee Retention to Maximize the Value of Your Firm

Within the C-suite, every top executive has an invaluable role to play.

The CEO is the visionary of the firm. The CFO manages the financial infrastructure while the COO (if the firm is big enough) manages the operations.

But when you consider selling your firm and need to demonstrate maximum value and future profitability, it’s the firm’s No. 2 executive who plays the lead role.

Employee Retention is crucial during any transitionThat’s right. It’s not the occupants of the C-suite who determine the maximizing of price for a sale. It’s your No. 2. This is the most senior and seasoned PR professional of the firm. He or she is most responsible to build the firm, win pitches, manage VP-level account executives and prepare to succeed the CEO.

Here are three vital ways your firm’s No.2 drives profitability and adds value to the firm.

1. She takes a huge burden off the shoulders of the CEO so she can focus on leveraging contacts and landing new business.

2. She manages client services, knows who’s working on what and understands the macros and challenges in a given market. Clients see that your No. 2 is able to provide counsel to the firm’s VPs and MDs not only creatively but financially, in terms of managing the time budgets included in contracts with clients.

3. She works with VPs and MDs to ensure that clients are well served, objectives are being met and the goal of 20 percent profitability on the account is being achieved.

It’s important to keep in mind that your firm’s No. 2 is a PR professional, not a financial, CFO-type. However, she is smart enough to review time charges versus retainers and gauge if the firm is suffering from overservicing—or scope creep—and, if necessary, request an increase in fees from clients.

The firm’s No. 2 will also communicate with the CEO about service and overservice issues and proposed discussions with clients about fees.

All told, it’s little wonder that when a buyer looks at the firm for possible acquisition the reputation and performance of your No. 2 is going to be top of mind. Executive and employee retention is a large part of this process.

Indeed, the decision to acquire a firm often comes down whether the buyer is fully confident that the No. 2 of the seller firm can take on enhanced responsibilities on a more regional and/or global basis and help drive the overall strategy of the company.

The No. 2, given the extraordinary responsibilities, should qualify for phantom stock, or “contract equity,” in which he or she gets a percent of any sale price of the business.

Every time the owner gets a check (down payment plus each earn-out payment), the No. 2 receives the respective percent.

For example, if the owner/CEO receives $1 million for the sale of the firm and the No. 2 has 10 percent phantom/contract equity, the No. 2 ultimately will receive $100,000 (in addition to a market salary, bonuses, raises and a 10 percent commission for new business).

Your No. 2 also generates a very attractive incentivizing compensation package, so putting aside a long-term incentive plan is crucial for agency owners considering selling out within the next five to six years.

Other incentives for employee retention could include merit increases, spot bonuses, profit sharing and stock options.

I also recommend that by receiving phantom stock/contract equity your No. 2 should be required to sign some form of restrictive covenant and/or non-compete agreement.

This is a mutually beneficial tradeoff. It incentivizes the No. 2 to remain with the firm and makes the firm’s new owners feel more secure in delegating major/new responsibilities to the No. 2.

We cannot overemphasize the value of the No. 2 for PR agency owners. If you have a extraordinary No. 3 and No. 4 that’s even better. The buyer will always look beyond the No. 1 executive to ultimately determine the value of the firm.


Sign up  for our email newsletter, Inside Edge…Business Strategy for PR, Media & Creative Service Agencies