Cost Effective Measures for Improving Compliance with Employment Laws

Protecting the value of your business demands compliance with employment laws and prevention of employee claims and disputes.

At Lerch, Early & Brewer’s first annual Employment Law Day on September 17, 2024, employment attorney Marc Engel presented 15 cost-effective measures employers can take to improve compliance, which follow here:

1. Update job descriptions to align with the essential duties that employees perform regularly.

2. Review pay ranges for various job positions to ensure compliance with applicable wage transparency laws. Also, the pay of current employees should be reviewed to ensure alignment.

3. Update handbooks to address changes in laws regarding sexual harassment leave, the use of generative AI, and other workplace issues.

4. Review and update offer letters and restrictive agreements.

5. Ensure that job applications and job postings are lawful.

6. Centralize hiring decisions and decisions concerning termination, adverse employment actions (such as demotion, transfers, etc.), and requests for reasonable accommodation.

7. Commit to regular manager training, which includes, among other things, the following:

   • Lawful and effective interview and reference questions;

   • Strategies for identifying strong candidates;

   • Handling leave and other accommodation issues effectively and lawfully;

   • Addressing performance management issues;

   • Evaluating employment termination decisions as warranted, and

   • Respectfully handling employee departures.

8. Regularly conduct sexual harassment training that addresses the new hybrid workplace.

9. Success leaves clues. Determine the workplace qualities (e.g., teamwork, initiative, curiosity, attention to detail, passion for work, and commitment to customer service) that have proven to be hallmarks of successful employees at the organization.

10. Update interview and reference questions to properly align with the workplace qualities that have proven successful in an organization.

11. With the assistance of counsel, review the characterization of employees for exempt/non-exempt status and revise job descriptions accordingly.

12. With the assistance of counsel, ensure that characterizations of employees and independent contractors are correct and lawful.

13. Explain the organization’s overtime policy at the inception of employment and repeatedly instruct employees and managers on when and under what circumstances overtime may be worked.

14. With the assistance of an insurance agent/broker (and counsel), consider Employment Practices Liability Insurance. If you have EPLI, review coverage (and harmonize with other insurances, e.g., general liability, D&O coverage, etc.) to ensure that it is sufficient in terms of scope and amount, particularly in light of new leave laws, wage and hour issues (including overtime), and legal developments.

15. Continuously review strategies for improving employee retention by, among other things, obtaining employee feedback, exploring career growth and professional opportunities, and constantly evaluating the reasons why employees join and leave an organization to tailor better hiring strategies and policies.

You can watch the recording of Marc’s presentation HERE.

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Key Employees and Building and Protecting Business Value

You may have people working in key roles who are instrumental in growing and building the value of your business. These key people can be identified as having the following characteristics:

• makes a substantial business contribution

• possesses critical information or knowledge or

• maintains and nourishes key contacts and relationships

In helping clients plan to build a business that’s sellable, and then eventually exit on their own terms and conditions, we emphasize that “key people are a key value driver “ in realizing success in both of those strategic goals. And, we find it helpful for owners to have two categories in mind when considering key employees:

1. Building business value

2. Protecting business value

Key people help owners build value and exit successfully as their roles serve in removing the owner(s) from the day-to-day management of the business, and by accomplishing objectives and key results for growing the business, that are aligned with the exit goals of the owner(s). An important planning focus for the owner(s) in building value, as it pertains to key employees, would include alignment of the employee’s performance goals with the exit goals of the owner(s), and a well-defined key employee incentive plan that provides impactful awards for goal attainment and retention.

Owners need to be aware, that there is also inherent risk related to key employees. Risks involving departure and competition, solicitation of customers and/or employees, and disclosure of confidential information. There is also the risk of losing a key employee due to unexpected death or disability. It can be costly to recruit, train, and compensate for a replacement in such a situation, as well as makeup for any loss in corporate earnings. Important planning areas in protecting business value, as it pertains to key employees, would include: Well-written and regularly reviewed employee documents (i.e., Employment Agreement; (listen to ExitReadiness® PODCAST Episode 43 w/attorney Marc Engel) and adequate life insurance coverage on the key employee (listen to ExitReadiness® PODCAST 54 w/Bill Betz of Betz Financial Advisory).

Check out our virtual exit planning resources and solutions at exitreadiness.com

Aligning Employee Incentive Plans with Owner Goals

Sarah wanted to exit in 5 years and had learned through planning and analysis led by her exit planner what “her number” was, as well as an objective estimate of the value for her business. She was pleasantly surprised to find that the financial gap for making her post-business dreams happen is not insurmountable. At the same time, she is aware that growing the value of the business (Sarah’s largest asset) will be necessary to close the existing gap.

With her newly designed comprehensive exit plan, and a decision to exit with a future sale to an unidentified strategic buyer, Sarah now has a crystal clear picture of what is needed to maximize and preserve the value of the business and attain her post-exit goals. Following are a few of the key value-driver action items identified during the analysis of Sarah’s situation:

• Strengthen Management Team

• Improve Financial Performance

• Establish and document a Growth Plan

• Increase Recurring Revenue

Now that Sarah knows how much she needs to grow the value of the business within her planned time frame for an exit, and what needs to happen to facilitate the required growth, she needs to take action in aligning employee incentive compensation with her strategic goals. For example, there is a need to increase EBITDA so she will implement an added incentive for the Chief Operating Officer that is tied to profitability. Currently, all that’s in place is a year-end bonus simply based on Sarah’s generous nature and whether or not they “had a good year.” She will do likewise for other employees who help drive the performance needed to accomplish her goals.

Sarah also now knows that it will be essential for these key employees to stick around during, and after, a sale transaction if the transaction is to be successful. Key employees who are not incentivized to remain through the owner's exit can seriously impact the owner proceeds at the sale and even destroy the deal.  

So, what does Sarah do? Stock Option Plan?  Phantom Stock Plan? Restricted Stock? Cash-Based plan? Stay Bonus? What plan or plans will be the most effective, easiest to implement, and cost-efficient?  Incentive planning can be complicated requiring deep expertise in statutory and technical requirements, tax planning, and other areas.   The Certified Exit Planner has made sure that the right experts have been involved and coordinated in designing and implementing Sarah’s new incentive plan, and so she is quite confident in the final plan.

In summary, be intentional in aligning your employee incentive compensation plans with your strategic owner-based goals for growth and exit, and get the needed expertise on your advisor team to help design and implement the plan. Effective incentive planning can play a key role in helping you attain exit goals within your desired exit time frame.

Contact us today for an exploratory conversation if you want to exit within the next 10 years. Don’t wait until you feel pressure to leave your business to begin planning. Plan now.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

An Often Neglected Means Of Protecting Business Value

One of the compelling and common characteristics of successful owners is their optimism.  Their “glass is always half full” attitude results in the risk-taking, perseverance, and innovation it takes to build and grow a successful business.  And, like it is with any personal strength, this strength of optimism can quickly become a weakness when there is a need to plan for the gloomy business contingencies of death and disability.  What happens to the business due to either of these less than optimistic events is probably the last thing an owner wants to think about. 

And, perhaps some business owners don’t care if the business fails as a result of one of these events.  Though, our experience has been that most owners do very much care about what happens to the business and all its stakeholders.  We’ve also observed, however, that the planning needed is often deficient.  And, one area that is most often overlooked is an owner’s potential permanent disability.

Whereas it’s fairly common for a business owner to have a level of life insurance protection (although often outdated in need of review) to benefit their business as well as their family, in the event of death, it’s not nearly as common to see the risk of permanent disability addressed adequately, if at all. 

And, becoming disabled for more than three months are greater than the chances of dying at every age: 

• Over one in four 20-year-olds will become disabled before reaching age 67. (1)

• Age 30 - the chances of disability are approximately 2.3 times greater than death

• Age 40 - the chances of disability are about twice that of death

• Age 50 - disability is 50 percent more likely than death (2)

• Not only does the risk of disability rise as we get older, but the severity of any disability that is incurred also tends to increase with age (3)

Your permanent disability (or death) and incapacity would most likely have the same impact on your business as the loss of any key employee.  All that you bring to the table in making the business a success, your experience, talents, knowledge, relationships would all be tough to replace.  And, there could be additional challenges such as the loss of concerned stakeholders, weakening financial strength of the business, bank financing re-examined, bonding capabilities interrupted, potential non-renewal of personally guaranteed leases, etc., etc. as a result of you not being able to work in the business.

The bottom line is this, that the value of your business could decrease significantly in the event of your premature permanent disability and incapacity.  All stakeholders would be impacted, and perhaps your family as well if financially dependent upon the continued success of the business.  Make sure you’ve thoroughly thought through this risk with your insurance professional.  Too often it’s neglected entirely.  You can also contact us for any assistance needed.

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Endnotes:

(1)     The Facts about Social Security’s Disability Program, Social Security Administration Publication No. 05-10570, January 2018.

(2)     1985 Commissioners’ Disability Individual Table A and 1980 Commissioners’ Standard Ordinary Mortality Table.

(3)     Americans with Disabilities: 2010, U.S. Census Bureau, Current Population Reports, July 2012.

Using Cybersecurity to Improve Your Company’s Valuation

Thanks to increasing reliance on computers, data, social media, programs, and networks, businesses all over the world are at a greater risk of a cyberattack or data breach. Companies have to fend off malware, DDoS, and phishing attacks at unprecedented levels. Cyberattacks have become so common that the cost of managing cybersecurity risks has become more of an investment than an expense. Consequently, one of the hidden costs of a cyberattack is how it affects the value of your company.

Cybercriminals, like water, find the path of least resistance. Investing in cybersecurity best practices, including a layered security strategy will reduce the risk of an attack. Stepping up your cybersecurity game will, in turn, enhance your market position and add tremendous value to your business. From a valuation perspective, strong cybersecurity means less risk for potential buyers and future investors. Cybersecurity diligence is particularly important for business executives who are looking to sell or are on the verge of selling.

Add Value to Your Company with Better Cybersecurity

Cybersecurity has become a necessity for every business out there, whether they offer products or services. Cybersecurity is rapidly becoming a trend in company valuations. All the factors that go into the value of the company including data operations, assets, customer records, intellectual property, employee information, marketing tactics, etc. are all vulnerable to cyberattacks. Demonstrating cybersecurity strength and integrity contributes to a company’s value.

As you can see, improving your company’s cybersecurity stature will fetch you a better price when it’s time to sell. Here are a few ways to secure your business and improve its value.

Risk Assessment

Cybersecurity risk is the likelihood of reputational or financial loss from a cyberattack or a data breach. A cybersecurity risk assessment is essential to a company’s risk management strategy and data protection efforts. Assessing risks and vulnerabilities can help you understand, manage, control, and mitigate cyber threats across your business.

Network Encryption

Data theft, tampering, technical failure, eavesdropping, etc. have all become commonplace in data networks. Securing network transmitted data against cyberattacks and data breaches is imperative for businesses. Only encryption can make sure that your company data is protected while in transit across data networks and links.

Network encryption makes data unreadable by anyone who is not explicitly allowed to access the information. A VPN is one of the most effective encryption tools. It creates a secure tunnel between your devices and the Internet, protecting your data from snooping. A VPN can also be downloaded in simple steps.

Layered Defence Strategy

In today’s dynamic digital environment, having a cybersecurity defense strategy can help businesses strengthen their resilience to cyberthreats. This strategy employs a series of layered defensive mechanisms including antimalware and network security controls such as a firewall to protect your online presence.

An emerging trend in the business world is the use of cybersecurity in company valuation. Organizations must strive to improve their cybersecurity position and increase their value. But with the cyber threat landscape evolving at a faster rate than companies can keep up, this is easier said than done. Risk assessment, network encryption, and adopting a layered cybersecurity strategy are some of the steps business leaders can take to improve digital security and add value to their companies.

Chris Jones is the resident tech expert and managing director of #TurnOnVPN. #TurnOnVPN is an activist group whose mission is to promote free and unimpeded internet for all. We take part in numerous online events to advocate for a safe, secure, and censor-free Internet. Learn more at www.turnonvpn.org/blog/.

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