Q. Is your key employee more an intrapreneur than entrepreneur?

March 18, 2016 | Cybersecurity Midwest Region Business Center,

A: Business owners attribute much of their success to the efforts of key employees. The owners want to reward and retain key talent, but if they aren’t careful, they risk having the opposite occur.

Typically, a key person is either an “inside operator” who keeps the place running or an “outside salesperson” who is the face of the business. Either way, that person may be more an intrapreneur than an entrepreneur. In other words, the value comes from working in the business but not necessarily owning it. An intrapreneur helps the business succeeds, but as a worker, not an owner.

So since stock doesn’t make sense, what incentives might work instead? A good solution is to have the intrapreneur share in the company’s success, not in its ownership. Consider a plan that not only pays an annual bonus but also provides “golden handcuffs” in the form of an incentive-based deferred compensation plan.

Each year, using a measure that pertains to the key person’s efforts (sales, profits, etc.), a portion of the business’s financial success is put into a deferred account that is only available to be paid out in the future. To be more than a mere promise, the tax-deferred bonus should be backed up with tax-deferred savings by the company.

This type of incentive plan allows the key person to succeed as an intrapreneur, be motivated to stay on and not be distracted with company stock.

*CPA does not provide tax or accounting services on behalf of the companies of the Principal Financial Group.

Matt Bral and Chawn Honkomp are Financial Representatives of Principal National Life Insurance Co. and Principal Life Insurance Co. and Registered Representatives and Financial Advisors
of Princor Financial Services Corp. Insurance issued by Principal National (except in NY) and Principal Life. Securities and advisory products offered through Princor Financial Services Corp., 800-247-1737, Member SIPC. Principal National, Principal Life and Princor® are members of the Principal Financial Group®, Des Moines, IA 50392.

Matt Bral
CFA, Princiapl Financial Group, Midwest Region Business Center
515-226-8072

Chawn Honkomp
CPA*, MBA, Principal Financial Group Midwest Region Business Center
515-226-8040