F E AT U R E
SHADOW STOCK: THE GOLDEN HANDCUFFS OF AGENCY PARTICIPATION By Al Diamond, Agency Consulting Group
If you have an employee who has proven to be both valuable to your business in the past and has the potential of helping you grow and prosper in the future, Shadow Stock is one form of reward that should be considered. Shadow Stock is the means by which an agency can reward a producer, manager or other employee in a form of deferred compensation, linked to the future success of the agency. If you have an employee who has proven to be both valuable to your business in the past and has the potential of helping you grow and prosper in the future, Shadow Stock is one form of reward that should be considered. The normal reward for employee’s efforts that help the agency move forward is fair and equitable compensation. Many owners feel that they should further reward those employees for their loyalty and dedication. That form of reward should come in the form of a pension plan that will further compensate those employees for their longevity and participation in the growth and success of the agency by sharing additional funding when they retire. These are the employees who are loyal and work for the agency ‘for a living’. The Pension Plan puts a set amount of money into the Plan, whether qualified or unqualified, that is available to pay to the employee upon retirement. It is, for all practical purposes, a savings account. However, there is another class of employees that shows a promise to help the agency grow in the future. The agency
owners feel that these employees could propel the agency forward even faster and will become the key players for the agency. The owners wish to establish a plan of action that would reward those employees for their efforts to grow and prosper the entire agency, not just a segmented book of business. If the employee who falls into this category has already proven himself/herself and thinks of the best interest of the entire agency; if she/he continues to perform in the best interest of the agency not just of their clients and their own book of business and is the likely successor of the agency, then REAL stock acquisition is the appropriate method of cementing the relationship. The employee becomes an owner of the agency (albeit a minority owner) through market value or beneficial discounted value of the agency’s stock. However, if you are not sure that the employee is ownership material now and if the employee has expressed an interest in ownership, certain traits you may want to observe before considering Shadow Stock. Does the employee prove himself/herself for leadership qualities? Has the employee become an important part of the production team or management team possessing and maintaining a large book of business and has earned the loyalty of the employees? If
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