Inevitably, all businesses must deal with employee turnover and the departure of key employees. Such departures have become more frequent of late, as the economy is again on the rise, more jobs are available, the unemployment rate is at an almost decade low 4.4% and wages have increased. Indeed, the average wage growth for full-time workers aged 25-34 who changed jobs in the first quarter of this year was 10.2%, versus a 6.8% increase for job holders. As a result, maintaining key employees has become a particular concern to companies vying to outsmart and surpass the competition in an age where exceptional human capital—the distinctive skills, knowledge and experience possessed by individual employees—is a company’s most invaluable asset and means to success.    

So what happens when a key employee suddenly departs? Do you have systems in place that will help keep essential functions of the company operating at the same level as they were prior to the employee’s departure? Is there a backup plan to maintain client relationships and ensure a smooth transition of responsibilities?  

Cutting Your Losses

The first and best way to mitigate employee loss is to create a culture where it is difficult for employees to leave. Understand your market and ensure that your employees are fairly compensated. Consider additional benefits – such as flexible scheduling, paid leave, employee discounts, and tuition assistance – as well as promoting a healthy work culture where employees feel supported and that there is room for advancement. Of course, no matter how strong a company’s culture and incentives, every employee will eventually stop working. Employee departures can result from any number of both planned and unforeseen circumstances, including death, sickness, injury, disability, layoff or involuntary discharge, retirement, or voluntary resignation. There are certain unavoidable costs resulting from such departures, such as for recruiting, advertising and training new employees, but often businesses suffer other, less predictable costs, such as decreases in productivity and sales, lost goodwill and customer relationships and declining growth opportunities.  Mitigating the risks and costs of employee departures requires advanced planning.

Managing the Risk

While employee loss is inevitable, there are several ways you can mitigate the potential costs and negative effects of such loss through effective risk management. Consider the following:

• Document institutional knowledge and standard operating procedures, particularly those key processes and essential tasks that only few employees know how to accomplish. This would include, for example, ensuring there are records of all log in and passwords for essential systems and software, as well as copies of marketing emails and campaigns, customer/client communications, crisis communication plans and employee training manuals. This will make it easier and faster to train new employees and ensures consistent work methods. The more detailed, the better.
• Draft and maintain case status reports on all current and ongoing matters and designate/familiarize more than one employee per matter to ensure a smoother transition if one employee leaves.
• Draft and keep up-to-date job descriptions for every position, defining key responsibilities and essential job functions. These can be useful for training new employees and as a basis for assessing individual job performance.
• Cross-train employees on work responsibilities of different positions and in different areas of the company. This will provide greater flexibility for scheduling, promote engagement and performance and increase opportunities for employee advancement.
• Maintain a pool of eligible replacements for essential roles. Having a specific person in mind to step in and take over when a key employee departs will hasten the process of finding and hiring a replacement.
• Conduct exit interviews upon the resignation of employees. This is an opportunity to identify and better understand employees’ issues and areas needing improvement in order to enhance existing procedures and employee incentives before hiring a replacement.
• Take out insurance policies on key employees and make the company a beneficiary.
• Create and develop a business continuation or contingency plan anticipating employee losses. Actively engage in succession planning for essential roles.
• Consider having employees sign non-solicit and/or non-compete agreements limiting their ability to directly and/or unfairly compete with you for a limited period of time, providing you some additional time to cement client relationships and transition work.

Implementing these safeguards will take time and effort, but the short term investment will undoubtedly pay off in saving your business considerable costs, time and trouble in the long run. 

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. Accessing this blog and reading its content does not create an attorney-client relationship with the author or with Miles & Stockbridge. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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