As we approach Q4 and the year winds down, many business owners focus on tax planning, budgeting, and forecasting. These are all important things to focus on, of course. Still, one of the most impactful strategic moves you can make before December 31st is creating a smart, intentional compensation plan for your key employees.
You started your business to see it flourish and succeed, and, as you grow, you will discover that your success may depend on others besides yourself. At Ensign Partners, we aim to help you craft a long-term success strategy, which often means investing wisely in your key personnel.
Key talent is hard to find, and even harder to keep. After all, if someone is doing an outstanding job for you, they could also be doing an outstanding job for someone else, and everyone else is looking for hard-to-find talent. While trying to achieve business success is central to your life, for your employees, it’s only a job—unless you encourage your key employees to invest in your success. Bonuses, incentives, and compensation structures can spell the difference between retention and turnover, between an engaged team member and one eyeing the exit.
People leave jobs for many reasons. It may be due to a health problem, a personal issue, or a family matter. But the last thing you want is for a key player to leave you because you failed to express how valuable they were to your organization in some tangible and meaningful way. Done right, your end-of-year compensation planning isn’t just a reward for performance. It’s a lever for long-term growth, loyalty, and alignment.
Here’s how to approach it with clarity and strategy.
Start with Your “Who” — Define Key Talent Clearly
Not everyone is a key employee. Before structuring any bonuses or incentive plans, define who qualifies for elevated compensation consideration. This process isn’t about being nice; it’s about who is providing critical value to your organization. To start your analysis, key employees often include:
- Senior executives or department heads
- Employees with customer-facing or revenue-driving roles
- Individuals with critical institutional or technical knowledge
- Team members identified as part of your long-term succession plan
Identifying key players doesn’t mean others won’t or can’t be rewarded. However, focusing on key players allows you to tailor compensation plans with deeper strategy and long-term retention in mind.
Clarify Your Goals — What Are You Trying to Reinforce?
Before running the numbers, get clear on the why behind your plan. Are you trying to:
- Reward exceptional performance?
- Retain talent you’re afraid of losing?
- Tie compensation to business profit?
- Incentivize a specific behavior or result in Q1?
- Lay the groundwork for long-term equity or leadership transitions?
Compensation is one of the strongest communication tools you have as an owner. Make sure the message you send matches your business priorities.
Structure the Plan with Strategic Layers
Compensation for key employees should do more than land in a December paycheck. To retain talent and spur motivation, the strongest plans include a mix of short-term rewards and long-term incentives, such as:
1. Performance-Based Cash Bonuses
- Based on individual KPIs, department goals, or company profitability
- Set clear, measurable criteria to eliminate confusion or a sense of entitlement
- Consider tying part of the bonus to 2026 results to boost continuity
2. Deferred Compensation or Retention Bonuses
- Paid out over time (e.g., 50% now, 50% after 12 months)
- Creates a “golden handcuff” that encourages retention
- May include vesting schedules or payout milestones
3. Phantom Equity or Profit-Sharing Plans
- Provide a share of upside without giving up actual ownership
- Can be tied to EBITDA, revenue thresholds, or sale proceeds
- Often used in lieu of stock for private companies
4. Tax-Advantaged Benefits
- Maximize retirement contributions (401(k), cash balance plans)
- Use Health Savings Account (HSA) matching or fringe benefits
- Consider non-cash perks that reduce taxable income
If you are considering tax-deferred forms of compensation, make sure your legal and tax advisors are involved in the plan. If mishandled, these have real compliance and tax consequences.
Think Beyond the Numbers: Communication Is Part of the Plan
While money is an excellent incentive for employees, don’t just send a check; send a message. Sit down with each key employee and walk through:
- Why they’re being rewarded
- How their performance is measured
- What opportunities exist for next year or another measurable time frame
- What long-term role you see them playing in the company
An end-of-year sit-down that involves giving a bonus or other compensation is a unique and valuable opportunity to build loyalty, trust, and vision that can say much more than dollars can on their own. It can impact morale, motivation, productivity, and employee engagement and satisfaction.
Tie Employee Compensation to Your Bigger Business and Wealth Strategy
Business success depends on multiple factors, which should all be coordinated to work toward one goal. Most business owners miss the mark by treating compensation planning as a standalone event. However, to be strategically valuable, employee compensation should be integrated with your:
- Year-end tax strategy
- Legal entity structure and employment agreements
- Succession planning or ownership transition roadmap
- Your personal cash flow and liquidity planning
Ensign Partners helps business owners align compensation planning within a broader strategy framework so you reward the right people, in the right way, at the right time.
If you want your best people to stay invested, help them feel invested. That starts with more than a bonus check. It starts with a smart, structured, and integrated compensation plan designed to build your business's future, not just close the books on the year.
If you want to learn more about Ensign Partners’ approach to business advice, integrating and coordinating tax, legal, financial, and insurance advice, contact us today to schedule a discovery meeting. We can help you design a custom compensation plan for your leadership team that works with an overall growth strategy built to bring success for your business and your life.