In today’s labor market, retaining employees is almost as challenging as hiring new workers.

Companies don’t want to lose any employees to the competition. They especially don’t want to lose senior management, specialized employees, and high performers. To keep employees from jumping ship, companies can offer “golden handcuffs” — incentives that motivate employees to stay on with a company long term.

Money's not the only answer

Companies can offer multiyear financial incentives, for example.

They reward employees with annual bonuses, an ESOP (employee stock ownership plan), profit sharing, and other incentives. Employees don’t receive the benefits all at once but rather incrementally over time or after a set number of years of employment.

Large employers typically have more resources available for such financial incentives. Small companies aren’t going to win a bidding war with a bigger company that can afford far more in wages and compensation. 

Instead of retaining employees by financial incentives alone, small businesses need other strategies to encourage employee loyalty and longevity.

“Can you give them something besides money to keep them motivated?” asks Dave Kaster, principal at Fidelis LLC, a business advisory practice in Green Bay, Wisconsin. He recommends examining all types of employee incentives as “golden handcuffs,” not only financial compensation.

“You want loyalty,” he says. 

Earning loyalty

Loyalty stems from job satisfaction. Employees will be more satisfied with their jobs if they have a good work-life balance. Employees like having the option of voluntary overtime, for example, so they can work extra hours when they want but also have time off to take their kids to a football game or go fishing. 

Job satisfaction and loyalty also come from managers who show confidence in employees’ abilities, without micromanaging. Recognition and appreciation matter, too.

“Make sure they know what their job is and why they do the job that way,” Kaster says. “Then recognize them for doing the job that way, even if it’s just a text on a weekend.”

Today’s video game generation is accustomed to earning a reward as soon as they achieve a goal. To leverage this characteristic, Kaster recommends finding ways to recognize employees as soon as they finish a task. A daily paycheck is one option, but there are other rewards that don’t involve money. Kaster suggests installing a scoreboard in the work area that flashes an employee’s name when the employee completes a task more efficiently than average or when the employee reaches a specific milestone. Workers who feel noticed, valued, and important will think twice about leaving. 

Good listener

Asking for employee feedback also fosters a sense of loyalty. Kaster suggests having lunch with employees on a random basis.

“Take your brown bag, sit down with them, and say, ‘Hey, I wanted to pick your brain about some of this stuff,’” Kaster says. 

Not only do employers gain valuable insight to improve operations, they also strengthen the management-employee relationship and build a more positive work environment. The conversation can extend beyond day-to-day operations to career objectives.

“You can open the door to talk about their future with the company,” Kaster says.

Encouraging employees to take leadership roles also builds loyalty. As employees request more responsibility and move into key roles, they indicate that they want to be a part of the company’s future. 

“During training and the probationary period during the first few years, make sure employees are taking advantage of ways to grow with the company,” Kaster says. “If they’re not, they’re looking for ways to get out of the company. They just want to maximize their position until they move onto the next employer.”

Retention begins at hire

Kaster says that employee retention efforts should begin immediately, early in the hiring process. An employer should look for indicators that job seekers understand the company’s long-term goals.

“What you’re looking for (in a new hire) is both character and vision and an ability to grow along the company lines,” Kaster says. 

With this mindset, the “golden handcuffs” strategy begins in the hiring process. 

“You have to employ people who have a good handle on what your company vision is,” Kaster says.

Companies should look for employees who put the company’s needs first. For example, they are willing to stay late to wrap up a key project. They might see a problem that hasn’t been solved and offer suggestions to improve training or operations. By going beyond the minimum, they take an interest in the company’s growth, while also taking advantage of the monetary benefits and job security. 

“It’s a good financial decision and good career decision to stay,” Kaster says. 

Achievable financial perks

A small business with five or six employees isn’t large enough for an ESOP, and profit-sharing plans could be troublesome. Profits can vary widely from year to year, creating negative reactions in the lean years. Plus, profit-sharing plans require management, adding more responsibilities and IRS compliance duties for the office staff. 

While these incentives might not be practical for small businesses, other financial incentives are. Kaster recommends exploring different compensation and merit-based pay options with a business coach, accountant or attorney.

Employers might offer a 401(k) retirement plan with employee match, college tuition reimbursement or a company vehicle. Kaster recommends merit-based financial incentives so that top performers gain recognition for exceeding benchmarks. 

“The high performers will stick around because they’re getting the bonuses, and the poor performers are going to leave,” he says. 

Other incentives might be a private office, extra paid time off or vacation days, a flexible work schedule, recognition awards or a new job title. All of these incentives motivate employees to work hard and stay with the organization. 

“The main thing is to have them think they mean more to you than just another employee,” Kaster says.