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How to tie Key Manager Golden Handcuffs to Performance

A critical component of the Succession Matrix® is Key Managers Motivation and Retention. The classic response to this issue is development of a golden handcuff that uses “gold” in the form of deferred compensation to provide a “handcuff” through deferred vesting and covenants regarding competition and confidentiality. Noting that there are three generic classes of key managers (Key Manager, Special Key Managers and Very Special Key Managers), the structure of the golden handcuffs is dependent upon the unique psyche of each class of key manager.  For more background on how the attitudes and motivations of each class of key managers impact the design of a golden handcuff, consult my book dedicated specifically to this subject titled “The Succession Bridge”.

Classically business owners have difficulty recognizing that the succession of their business is dependent upon the motivation and retention of key managers.  Typically late in their careers, owners come out of the ether and recognize their key manager’s vulnerability beyond the ability to easily recruit replacements. They respond with imbalanced support for their key managers through generous “golden handcuffs” but without any responding performance expectations. In many cases this support is presumed to be justified because the key managers have expressed a reluctance to baby-sit Junior and Sissy who are predictably immature because Daddy has stayed at the helm too long. Specifically the essence of the support for key managers is that the extra benefit of the “golden handcuff” does not require consideration from the key manager. The owner just says  ”here’s an extra benefit and hopefully you will hang around to collect it”.

My point is that another interdependent component of the Succession Matrix® is Management Teamwork and Synergy. This is a component of the Matrix because succession is just a fleeting dream without teamwork and synergy. In the absence of all members of the organization working together for the achievement of a common goal, the odds of achieving Succession Success are greatly reduced. Unfortunately teamwork is not natural behavior; it must be learned and practiced. Most of us, especially performance driven key managers, would rather not have our success dependent upon the performance of others. 

Consequently, in lieu of supporting key managers, “golden handcuffs” of any form should require key managers to both lead and participate in team building structures. This can be done in two ways. First, require managers to participate in a Management Advisory Board (MAB) which requires them to be part of a team of managers that focuses out of their department onto strategic organizational issues. Second, make a portion of the “golden handcuff” funding dependent upon overall organizational performance.  As a result you will achieve a fair balance between the price paid for a “golden handcuff” and the performance achieved.


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