Small Business Owners Often "Held Hostage" by Employees

Small business owners enjoy the excitement and challenge of building their own team. With every new hire, management hopes the employee will fit into the company's culture, perform well and stay with the company for a long time. Business owners are often willing to reward good team members with special perks such as flexibility and time off.

However, entrepreneurs frequently feel like they are "held hostage" by an employee who has generated business, become well-acquainted with customers and understands company operations and the marketplace. Business owners can feel threatened by the thought of the employee leaving and worry about retaining clients or maintaining business processes. Before this happens, it's important to take action to protect your business.

Business owners should consider these signals to assess the likelihood of a "hostage" situation:

• An employee has had sole contact with key clients for an extended period while management has no interaction.
  
• An employee's base pay has been increased beyond marketplace norms in response to their threats to leave.
  
• Employees have not signed a business confidentiality agreement stating that they will not solicit current or prospective clients for one year following separation from the company.
  
• An employee is the only individual who knows how to do what they do.

If any of these traits apply, the following action steps can help:

Confidentiality and non-solicitation

First, protect the company's products or services, processes and client base. From the employee's perspective, it may look tempting to start and run her own business. It's critical that all new hires — at all levels — sign an agreement regarding confidentiality of all business-related information and non-solicitation of the company's clients. If business owners have already hired employees and have not required confidentiality agreements, it's not too late. However, when implementing such documents, business owners must do it uniformly, requiring a signed agreement as a condition of employment. Owners must be prepared to terminate any employee who won't sign one. Remember, anyone who has a problem agreeing to these conditions may have already misused information or shared it inappropriately.

Cross training

Define the key tasks of each employee, and attempt to cross train the three most important ones. If cross training is not possible because of the small number of skilled employees, then have the employee fully document how the task is done. Remember, an employee could leave without a moment's notice for a variety of reasons, and business owners have the right to be able to pick up where that employee left off. Although many employees are territorial about how they do their work, the work and the results of that effort still belong to the company. Review documentation yearly.

Client contact

Although business owners hire salespersons or customer service reps to maintain all the client relationships, they should still speak with key clients quarterly. Perform formal client reviews with the company's sales or service reps two or three times per year to ensure client service meets management expectations — not just the employee's standards. Unfortunately, sales persons tend to take ownership for their clients and the relationship with the client can sometimes obstruct sound business judgment.

Survey clients annually to validate that your business is meeting management's expectations. One local company who had a third party survey their clients found out that the and the clients weren't making repeat purchases. Management didn't even realize the company was losing business due to the employee's style.

Marketplace benchmarking

Keep base pay in alignment with the marketplace, and reward actual accomplishments via bonuses. Obtain factual information and market data annually regarding pay and bonus structures for positions within your company. This data may prevent overly generous pay raises as a mechanism to keep an employee from leaving. Raising the employee's base pay beyond market standards is often a poor strategy. Employees quickly come to expect astronomical annual raises. Since benefit costs are usually driven by employee base pay, this can trigger higher employee benefit costs for the company as well. One-time bonuses based on measured performance and results — not effort — are one way to avoid inflating base pay. Professional associations can be a valuable resource for salary information.

Small business owners frequently take pride in their team being "like family." But it's still possible to create a collegial work environment while protecting your corporate assets. Employees will have a greater respect for your company if they see that it's worth protecting. Human resources consultants, employment attorneys, and networking with other small businesses can help companies assess whether or not they have protection in case of unexpected turnover and can provide valuable assistance in putting the proper safeguards in place.

- Danielle Rodenbough, principal of Trouble at Work?, a human resources consulting and employment service firm specializing in small businesses. She may be contacted at danielle@troubleatwork.net. Used with permission for Creating Quality Newsletter, Nov./Dec. 2003.