Situation: A company hired an employee one year ago. The employee is competent but slow. Even after a year on the job, other employees with similar skills and experience are able to complete the same job three times faster. What is the best way to handle this? How do you set expectations for an employee?
Advice from the CEOs:
The most important principle governing situations like this is clarity of communications. You must clearly express your expectations, and you must assure that the employee clearly understands your expectations.
Assure that expectations are clearly expressed. This means what you expect in terms of performance, and firm timelines for achieving minimum requirements. You also must assure that the employee understands the consequences for failing to meet minimum requirements. The best assurance is written confirmation that the employee understands what is expected.
Don’t be vague or nice about your expectations, performance requirements or the consequences for failing to meet minimum requirements. This risks sending the wrong message to the employee.
Put the employee on a performance improvement plan to meet minimum job requirements. Monitor and document for 30-60 days and then handle according to how the employee responds.
If the individual can’t meet the objective, but has potential value to the company, offer the person an appropriate position at the level that the new position pays.
Have a second person in the room when you deliver the message. If you determine that you have to terminate the employee and the employee elects to sue, this will help your case in a judicial action.
Situation: A company’s accountant advises them to transition from a C Corporation to an S Corporation. Remaining a C Corp would force them into accrual accounting with significant tax consequences. The accountant also advises that it is easier to sell an S Corp to a buyer, and S Corp status would relieve problems with retained earnings. Which do you think is preferable, C or S Corp status?
Advice from the CEOs:
Accountants disagree. Get a second opinion. Also consult a tax or corporate lawyer who will provide another perspective.
Another company looked at S vs. C status and found two key factors:
S Corp status is great if you expect to lose money for a few years because of the benefit that it can offer to personal taxes. Over the long-term you should look at the difference between personal and corporate tax rates and set your strategy so that it makes the most sense.
An S Corp cannot have non-U.S. shareholders.
There is more flexibility with C Corp status in your ability to grant options, sell shares, etc. For a suitor, purchase of C Corp shares prior to a full acquisition is like a date before deciding on marriage.
C Corp status is good if you are building an empire. S Corp status is better if want to have employee ownership under an ESOP as an option for exit.
Since taxes are a significant part of this decision, think carefully before you shift from cash accounting.
Once you commit to accrual accounting you can’t go back to cash basis.
To the extent have an accrued tax liability you can extend payment of this liability over multiple years.
You also may want to consider a hybrid accounting method:
Accrual for sales
Cash for service
Look at whether there are tax advantages to a hybrid model.
Situation: The CEO of a small company finds that whether he gives broad direction to employees or very specific instruction he gets the same result: they don’t seem to understand what he wants. He feels that they don’t have a sense of buy-in or urgency. What are best practices for effective delegation to improve results?
Advice from the CEOs:
You recently fired an employee for inconsistent performance but didn’t tell your staff. When you return to the office this afternoon, get the employees together and tell why the individual was fired. Let them know that this is part of a broader pattern that you see within the company and that if you see other cases of individuals not following through on their assigned responsibilities you will have to take additional action. Unless your employees understand that nonperformance has consequences, there will be no change.
In your operations, set subassembly goals and intermediate milestones coupled. Create and post a set of charts in the operations room so that employees have a regular visual reminder of how they are doing. Bring these charts to employee meetings and discuss how the company is doing. If deadlines aren’t being met, ask for input on how to improve performance. Celebrate successes with recognition for individuals or groups who demonstrate the ability to meet objectives.
Hire an operations manager with experience working with teams the size of yours. You want an individual who excels at motivating and getting results from people, and who has supervisory versus managerial experience. Think platoon leader – a person who excels at effectively running small teams.