The Key Employee Problem

I’ve experienced this problem myself in the past: a key employee I couldn’t do without. An employee whose technical knowledge was singular to him and we couldn’t do without. When he pressed me for an over-the-top salary, I was stuck and had to give it to him. I felt he took advantage of me, in part, because at the time, we were in a downsizing mode and he knew the financial stress our company was under. But he cared only for himself and got what he wanted in the short-run.

I know of another business owner who had a key employee who was going out on a new, strategic consulting job with a new customer. They employee flew to the customer’s city on Sunday and then called the owner Sunday night and demanded a salary increase or he wasn’t going to show up to the customer’s site on Monday morning. My friend fired him on the spot but lost the customer because he didn’t have anyone with a similar skill set and experience base to replace him.

In both of these scenarios, we have key employees thinking they are worth more than they are and in both cases, they try to take advantage of the owner to get the compensation they feel they deserve. Both of us owners were unprepared for this eventuality. No organization should be dependent on one person. Key employees shouldn’t be so “key” as to be irreplaceable or indispensable.

Looking back, what I should have done was denied him the salary increase. Then – anticipating his voluntary departure – I should have found two contractors who could do what he did at reasonable rates. Instead, I paid him and he performed well. But in keeping with my notion of inverse cause/effect with salaries, I found he grew increasingly discontented in his role, even though he was being paid above market. I’ve seen it several times before – pay people too much and they actually get cranky, selfish, demotivated and discontented. Paying an “A” level salary for “B” level performance ends up getting you a “C” level person who leaves anyways for greener pastures.

So – what should I have been doing to avoid this problem in the first place? Two things: Process Documentation and Cross Train and Building my Bench.

Process Documentation and Cross Train

When it comes to process documentation, there are three things you can do, as an owner, to ensure you’re not caught over the barrel if your key employee has “inside” process and task knowledge that no one else has:

  1. Make a list of the tasks that each employee does within your organization
  2. Document the steps that must be performed
  3. Make this information available to others and cross-train so that you have two people who can perform the steps within any given process

Process-based organizations can do this more easily because of their culture of being processed focused. For example, making a list of regular tasks that each employee does can be visualized as follows (this example is for a Payroll Supervisor):

Then, the specific tasks for each regular task can and should be documented in a simple process diagram. For example, here are the steps for entering the weekly payroll:



Building My Bench

For highly technical skills that are difficult to document, I’d advise Building a Bench of potential contractors and employees before you need them. Having a contractor available who has the knowledge and skills of your highly technical employee is a great card to play at the right time. At least with a contractor, you’ll have choices if your employee asks for a higher-than-market rate for his or her salary.

But building your bench is something you should be doing on a regular basis anyways. As the business owner, I would advise you to have at least one “networking” appointment each week with someone who could be a potential employee or contractor down the road. You invite him/her to lunch and you frame it up this way: “Look, I don’t have an open position and you’re not looking for new work, but that doesn’t mean we won’t do business together in the future, so let me buy you lunch”. 99% will take you up on this and when life happens at their job, they may just ping you and say – “Hey, such an such just happened, want to talk?” Or, they may have a friend whose life is in turmoil and is looking for something new to do in the next X number of months. This is something that you, as the owner, can and should be doing. Building your bench before you need them is just plain smart and it helps reduce the key-ness of your key employees.

So, the next time that key employee feels he is underpaid, you can look him in the eye and, with confidence, say ” I understand you want to earn more money – so help me understand what additional value you’re going to bring to the table.” And if they balk, you can remind them that you have X number of people with their skill set you can call today who would be candidates to replace him. Hardball? Yep. You bet. But sometimes, playing hardball with your key employees is what’s needed.

Bill English, CEO and Founder


3 thoughts on “The Key Employee Problem”

  1. Hey Bill

    Good post. I am a simple guy so I really liked your ABC formula. I have often thought should overtime right up their own job description. Being in the it business having a backup for people is just as important as for data.

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