Design the Right compensation plan for Your Business

Susan Carpenter, Founder, MFP Employee Benefits and HR Services, LLC

For every dollar of revenue an employer raises, an average of fifty cents is spent on compensation and benefits, particularly at the executive level. But what does an organization get for its investment in its top team? What can it expect? Solid, well-devised executive compensation packages are great tools for driving organizational goals and objectives.
As an employee benefits and human resources consultant, I work with companies both large and small in designing competitive executive pay plans and compensation packages. My business is often engaged, it is to review current plans to assess if an organization is compensating adequately to ensure it can stay competitive when recruiting and retaining executive-level talent.

Market Data is Key to Ensuring Competitiveness

The process of executive compensation review often begins with data-data acquired through market data studies that illustrate if an organization measures up compensation-wise to similar organizations. Using market data to evaluate your executive pay plan requires a careful look at base pay, annual short-term bonuses, and long-term incentives.
Compiling a market study for assessing executive compensation is a detailed process, which involves these steps:

• Determine the labor market: How easy will recruitment be? Most CEO searches reach out to a national or international market to recruit, so when looking for competitive market data, an organization must match the industry market rate.
• Determine the CEO responsibilities: Will the CEO come into a stable organization, or will they be required to double sales in the next two years? Knowing what skills the organization needs in its CEO is critical to finding the right candidate and developing the appropriate compensation based on organizational goals.
• Develop the market study by gathering data on several different types of executive compensation: Gather market on all three kinds of competitive compensation for executives, including base pay, short-term incentives, and long-term incentives. Keep in mind that long-term incentives can take the form of cash, stock, phantom stock, stock options and other vehicles to reward growth.

For further information, see the Sample Market Data Pay Tool for CEOs, which can be found in the Related Media section of this article.

Compensation Plans Can Drive Your Organizational Goals

Establishing an executive compensation plan involves a strategic planning process to ensure the plan aligns with short-and long-term goals. It is much like a funnel. High-level overarching goals are set and broken down for consumption by the various levels of the organization. As they cascade down, there is smooth alignment.
For example, goals established at the executive level might address financial benchmarks, growing market share, retaining business, or meeting quality or productivity outcomes. Sometimes, as executives work to accomplish established goals, misalignment occurs. Examples include:

• Large base pay packages with small incentive opportunities tend to promote the status quo. There needs to be enough of a compensation "carrot" available to executives to make them interested in growing the organization. Typical pay packages for the CEO include a base pay with 50 to 100 percent of base pay available in a short-term bonus and over 100 percent of base pay available in a long-term incentive.
• Executive compensation packages need to be checked to ensure conflicts do not exist between short- and long-term goals. Sometimes executives are tempted to make decisions that generate short-term cash and provide them a generous bonus, but their decisions are detrimental to the organization over the long term. For instance, in a manufacturing environment, preventive maintenance is important. An executive may put off such maintenance so the plant exceeds a productivity goal. As a result, short-term goals for productivity may be met, but the putting off maintenance jeopardizes the long-term life of the machinery.
• Sales goals and sales compensation must be designed carefully to compensate properly for the sale of all product lines. Checks must be put in place to ensure the organization doesn't emphasize for sales of a low-margin product line and under-incent for sales of a high-margin product line. The design must focus on incentives at the expense of the sale of more high-margin products.

Think Beyond Financial Measurements When Developing Short- and Long-Term Goals

Companies often develop financial goals for executives, but other goals can be measured and rewarded as well, and long-term goals are just as important as short-term goals.
Short-term goals at the executive level, which often span of twelve months, might focus on staff retention, getting everyone through a specific training program, or implementing a new payroll or accounting system. Bonuses on short-term goals are generally paid out three to six months after the close of a fiscal year.
Long-term goals on the other hand, which are generally multi-year initiatives, might be based on opening up new markets or territories or overseas expansion and might be paid out over a multi-year period. For instance, if the long-term goal at the executive level is to expand into ten states, a short-term goal within the long-term goal might be to expand into two states. Here, an executive would be rewarded in the short term for expanding into two states and then receive a bonus again when the larger ten-state objective is met.

Developing Compensation for CEOs Requires Board Involvement

In many cases, a board will charge a compensation committee with negotiating a pay package for the CEO. To begin the process, boards often hire consultants to provide them market competitive pay package information.
To begin the process of determining CEO compensation, the board needs to consider the overall objectives of the company and compensation philosophy. Stock price is almost always a big component of the CEO's pay package.
Many boards take the approach of creating an overall CEO pay opportunity including short-term bonuses and long-term incentives above the market median. Boards should be mindful of this tendency and keep it in check. Additionally, boards need to be flexible and change the CEO's pay components yearly to adjust to the businesses goals and objectives.

Rollout of Your Incentive Plan: Aim for Fourth Quarter Prior to the New Fiscal Year

Companies often wait until the beginning of a new fiscal year to do their executive compensation planning when it should really occur in the third and fourth quarters of the previous year. A good goal for organizations is to develop their plans for rollout in the fourth quarter, so executives understand the goals and objectives and how they will be rewarded.
The compensation redesign process can take three to six months. It is normally a collaborative process within the organization and involves feedback from executives. It also involves determining if systems are in place to measure the outcomes upon which executives will be rewarded in the coming year. If such systems aren't in place, that process alone can take an additional three to six months, and even then, an organization may not be able to use the data generated from the systems right away since they often need refining and readjustment.
There is much work involved in developing an executive compensation plan that keeps you competitive, integrates short- and long-term goals, and contains performance measurement systems that tie back to compensation. But in the final analysis, your compensation structure drives the performance of your top talent—your executives. To maximize organizational performance, executives must be properly incentivized and goals must be aligned.

‘Surviving the Entrepreneurial Life’ Can Help New Business Owners Meet Needs of Both Business and Family

Kauffman Founders School releases a series offering insights from author Meg Cadoux Hirshberg, a contributing editor to Inc. magazine and spouse of an
entrepreneur

(KANSAS CITY, Mo.) Feb. 20, 2014 – Many an entrepreneur has struggled to balance the needs of the business and the needs of family. Concerns over time away from home, the allocation of financial resources and which spouse is responsible for what can put families under tremendous pressure as entrepreneurs grapple with the uncertainties, challenges, and ups and downs of entrepreneurial ventures.
The online "Surviving the Entrepreneurial Life" series, released today by Kauffman Founders School, features insights from Meg Cadoux Hirshberg, an Inc.com columnist and author of the award-winning book For Better or For Work: A Survival Guide for Entrepreneurs and Their Families, which draws on her experiences when she was helping her husband build his company and on her hundreds of interviews with entrepreneurs and their families.
Presented through a series of videos and supporting materials, Hirshberg delves into the delicate interplay between work and personal life and the numerous stress points that can undermine relationships.
The Surviving the Entrepreneurial Life curriculum offers practical advice on how entrepreneurs can run their businesses without alienating their families, including:

• The entrepreneur and spouse should talk about the risks and opportunities of a startup before the company launches.

• Once the business is underway, the entrepreneur and spouse need to decide together how much and what kinds of information the spouse wants to be told about the business.

• Entrepreneurs must devise strategies to balance the competing demands of work and family. Besides attending the recitals and soccer games, the entrepreneur should  reserve unstructured "hangout" time with his or her children.

• Couples in which one spouse is an entrepreneur and the other spouse is working a job to support the family and/or the business face distinct pressures. A working spouse's financial contribution to the entrepreneur's business should be viewed as an investment.

• Empathy is especially crucial for an entrepreneurial family. The spouse needs to understand that the entrepreneur has to be "all in," and the entrepreneur needs to understand that the race toward business success may seem like a "lonely marathon" to the spouse.

• Even though entrepreneurship demands intense dedication, entrepreneurs shouldn't get so wrapped up in the business that they forego vacations or indefinitely postpone important life goals such as marriage and starting a family.       

Teaching entrepreneurs best practices in areas not typically covered in other training programs, the Kauffman Founders School enables entrepreneurs to learn anywhere, anytime, and to immediately apply the lessons to their businesses. Other Founders School topics include:

• Lessons on Start-Ups, including "The Lean Approach" to starting a business, presented by Steve Blank, a Silicon Valley serial entrepreneur and academician. 

• Entrepreneurial Selling, presented by Craig Wortmann, CEO and founder, Sales Engine, and clinical professor at the University of Chicago's Booth School of Business.

• Intellectual Property, presented by Peter McDermott, partner, Banner and Witcoff.

• Powerful Presentations, presented by Nathan Gold, founder, The Demo Coach.

• Founder's Dilemmas, presented by Noam Wasserman, who teaches an award-winning course on entrepreneurship at Harvard Business School.

The Founders School online education program is housed on the Kauffman Foundation's Entrepreneurship.org web platform, which offers resources, educational information and tools for entrepreneurs. It can be accessed at www.KauffmanFoundersSchool.org or via www.Entrepreneurship.org.

Related Content

• Kauffman Founders School

Entrepreneurial Skills Training

Entrepreneurial Skills Training is a fully-funded series of skills workshops aimed at SMEs to help take your business from good to great by InnovateUK.

Are you a small business owner looking to learn new skills and grow your business?

Delivered by experienced Enterprise Europe Network Innovation Advisers and developed and accredited by School for Startups, Entrepreneurial Skills Training is a series of fully funded workshops to help you innovate and grow your business to its potential.

How it works

Entrepreneurial Skills Training consists of 12 practically focused business skills workshops, ranging from Value Propositions and Marketing, to Pricing Strategies and Managing Risk.

The first three sessions are the ‘Core’ workshops and start with a focus on business modelling, defining your proposition and providing you with an opportunity to conduct a detailed analysis of your current model and how it could be developed and improved.

Whilst attendance at the Core workshops is not a pre-requisite for attending the Specialist workshops (except for Workshop 9) we recommend that you do attend them sequentially to get the most out of the programme:

Core Workshops

Workshop 1 - Defining the Value Proposition

This workshop will help you articulate, test and evaluate your value proposition and wider business model using the business model canvas and related tools.

Workshop 2 - Business Model Generation

This workshop allows you to develop and refine your business model to include competition, customer segments and relationships, routes to market and sales channels, operational resources and partnerships.

Workshop 3 - Testing the Business Model

This workshop illustrates how to test, evaluate and further refine your business model through financial modelling (pricing, costing and revenue streams).

Specialist Workshops

Workshop 4 - Pricing Strategies

This workshop helps you to identify the most appropriate pricing and revenue model for your project and business; devise and implement an effective pricing strategy.

Workshop 5 - Strategic Marketing

This workshop looks at devising and implementing a strategic marketing plan that includes brand development and communication, routes to market, PR (traditional and digital).

Workshop 6 - Web Fuelled Business

This workshop is focused on evaluating the most appropriate online tools for your business and implementing a web focused operational, sales and marketing plan.

Workshop 7 - Selling & Negotiation

This workshop helps you to acquire selling skills and experience applicable to commercial buying, investment and partnership development.

Workshop 8 - Building & Leading Teams

This workshop focuses on developing and implementing a people management plan and acquiring relevant skills to maximise productivity.

Workshop 9 - Organisational Strategy

This workshop will help you evaluate the re-engineering needs of your business and devise and implement an effective organisational development plan.

Workshop 10 - Finance for Growth

This workshop offers the opportunity to interpret and understand financial and economic data to support the key management tasks of planning, decision-making and creating value within the business.

Workshop 11 - Access to Finance

This workshop gives business owners the skills and information they need to acquire funding and finance throughout their growth journey.

Workshop 12 - Managing Risk

This workshop offers the opportunity to identify and mitigate against the key risks facing your business.

Who should attend?

These workshops are aimed at businesses with the potential, ambition and capacity for high growth and attendees must meet the following criteria:

• Your business must be UK registered
• Your business must have been trading for at least 12 months
• You must employ at least one other person up to a maximum of 250 employees
• Your business turnover must not exceed €50m
  
  
  Book your place on an Entrepreneurial Skills Training Workshop

  About Us

  Innovate UK

  Innovate UK is the UK's innovation agency. We work with people, companies and partner organisations to find and drive the science and technology innovations that will grow the UK economy.
  Find out more at www.gov.uk/government/organisations/innovate-uk

  UCL Advances

  
  UCL Advances, UCL's centre for entrepreneurship and business interaction, helps anyone who wants to learn about, start or grow a business.
  Find out more at www.ucl.ac.uk/advances

8 Successful Online Entrepreneurs You Should Be Following

There isn’t a single entrepreneur out there that can’t benefit from some extra inspiration and motivation. We can all learn something by following successful individuals. It sparks inspiration and learning from their real-life business experiences can help us all on our own entrepreneurial journeys.
I have put together a list of eight online entrepreneurs that I personally follow and have worked with -- individuals that all entrepreneurs can learn something from, especially those interested in starting or growing an online business.

1. Jeff Taylor

As CEO of DEVISE, Jeff Taylor has extensive experience building profitable online businesses. What began as a web design and marketing firm eventually transformed into an entity that creates, markets, monetizes and then eventually sells websites. Taylor and his partner Evan Lisabeth have the ability to grow online businesses at an incredible rate.
I have first hand knowledge of his success, as my company brokered the sale of a seven-figure website Taylor's team created.
Taylor stresses the importance of taking action immediately, stating, “I’ve had thousands of ideas, but unless you put action behind them, nothing will come of the idea. There’s no reason to wait for the perfect time to start a project. Start working on it today.”
Related: 7 Entrepreneurs You Should Start Following Now

2. Tim Seidler

Tim Seidler is a husband and father of two children that used online entrepreneurship to completely turn his life around. He was once in a place that many individuals find themselves -- utilities turned off and bills he couldn’t pay. He did something that many don’t have the courage to do -- Seidler quit his job and put 100 percent of his time and effort into creating an online income, recently selling a portfolio of websites for six figures!
Through his website, Get Niche Quick, Seidler blogs about the highs and lows of his entrepreneurial journey. His transparent approach is beneficial, as entrepreneurs will see that there are good days and bad days in any business. Seidler shares his current and future projects and also openly discusses his income -- sharing both his best monthly earnings as well as daily earnings. There definitely isn’t a lack of inspiration and I highly recommend following Seidler’s online business journey.

3. Dom Wells

Affiliate marketing is a huge business, but the truth is that many entrepreneurs quit because they get discouraged when they don’t see instant results. It takes time and a well thought out strategy to make sizeable earnings through affiliate marketing. Dom Wells, a highly successful online marketer, offers guidance to entrepreneurs that want to learn how to make money online.
His website, Human Proof Designs, offers training through its blog to those who want to learn how to start a niche website the correct way -- everything from niche research to monetization is covered. Wells doesn’t just talk the talk. He walks the walk, constantly creating new niche sites to add to his portfolio and turning his experiences into case studies for his readers.

4. Steve Rendell

Steve Rendell is the man behind Texfly, an online resource for entrepreneurs who are interested in creating profitable niche websites and ranking them high in search results using the power of private blog networks. Rendell's website stands out because he isn’t afraid to talk about what really works.
Several SEO professionals will dance around the topic of private blog networks, instead just saying that quality content should be the main focus. Well, private blog networks rank websites and many of the elite SEOs use the same methods -- they just don’t openly discuss it. The blog and private blog network blueprint that Rendell makes accessible on Texfly are well worth the read and something anyone with an online presence will benefit from greatly.

5. Stuart Walker

An entrepreneur that specializes in online niche marketing, Stuart Walker shares his insight and knowledge on his website, Niche Hacks. Walker is an under-30 entrepreneur that travels the world and makes money from a wide variety of online assets. He is living the dream many aspire to reach through online businesses.
Since so many people fizzle out and give up before reaching their potential, Walker decided to start a blog that focuses on niche research and the shortcuts he personally uses to create a sizeable full-time income while living location-independent. His best information is free and something that all online entrepreneurs can find value in -- and his blog posts about growing traffic and promoting content is something that every business owner will learn from.
Related: What Type of Entrepreneur Are You? (Infographic)

6. Tung Tran

To be successful online you have to have a strong understanding of how to rank organically in the search results. This is beneficial to entrepreneurs that want to start their own online-based businesses as well as those that want to rank their brick-and-mortar business websites. Tung Tran is an online entrepreneur that documents his success and strategy on Cloud Living.
Tran discusses how to start an online business and how to drive traffic using several strategies. I hear so many people talk about how they would love to earn a living through an online business but they aren’t sure where to start. It’s entrepreneurs like Tran that provide the inspiration and hand-holding that helps numerous people become successful online business owners.

7. Alistair Gill

With an online presence being such a crucial part of every business’s marketing and promotional strategy you can never learn enough about content management systems, search engine optimization and web analytics and metrics. I follow Alistair Gill to stay current with SEO trends and because I enjoy his in-depth analytical posts on his personal blog.
Gill’s blog posts are packed of useful information and he likes to put together pieces of content that feature several months of data and research. I really like reading case studies and guides with data -- these are the types of blog posts that you can read and take the findings and apply them to your own business.

8. Melanie Duncan

Melanie Duncan is a true inspiration to entrepreneurs around the world. She cites the following as a problem many of us have: "If you don’t learn how to effectively work 'on' your business, instead of 'in' your business, you will never be able to strategically grow and you’ll sacrifice the quality of life you deserve."
For those of you still grinding out 80 hours a week, that quote will resonate deeply with you.
Follow Duncan closely and you'll learn all about growing your online business. With a weekly newsletter and regular blog posts, there is just the right amount of content to properly digest and apply before moving onto the next!
While these are my suggested online entrepreneurs to follow, there are certainly a lot more. Do you have any to add to this list? I would love to hear your suggestions in the comments section below.

Some Kids Sell Lemonade. He Starts a Chain.

Photo

Jack Bonneau, 10, of Broomfield, Colo., waits for customers at his cider and hot chocolate stand at a shopping mall in Littleton, Colo. Credit Nick Cote for The New York Times

Two summers ago, Jack Bonneau started a lemonade stand to earn some cash. Instead of setting it up on a street corner in his Broomfield, Colo., neighborhood, he and his father, Steve, came up with a more ambitious plan. Jack, then 8, would peddle cups of lemonade at the local farmers’ market throughout the summer.

The strategy was a success.

“I had sales of around $2,000, and my total profit was $900,” Jack said, adding that the experience increased his confidence in school. He also enjoyed learning “financial literacy,” by which he meant “adding and subtracting, and profit and loss, and subtracting expenses from revenue, and just learning about margins, and all of that stuff.”

By the next spring, the Bonneaus had named the operation Jack’s Stands and devised an expansion plan. They built a website and additional stands and began selling lemonade at three more farmers’ markets.

They used funds from a $5,000 loan that Jack’s Stands secured from Young Americans Bank, a Denver bank that specializes in loans to children. The loan was guaranteed by the bank’s companion organization, the nonprofit Young Americans Center for Financial Education.

Photo

Jack, with his father, Steve Bonneau, says he enjoys learning about margins, profit and loss “and all of that stuff.”
Credit Nick Cote for The New York Times

The Bonneaus also recruited a sales team. Other children eager to earn a buck, and whose parents saw this as a good learning opportunity, volunteered for shifts at Jack’s Stands.

Jack was excited to teach other children what he had learned. He taught them how to operate the stand, and at the end of each shift, he showed them how to count money and calculate profits and losses. The children, ranging in age from 7 to 11, walked away with tips and a cut of the profits, usually $30 to $50.

Jack, now 10, is among thousands of children in the Denver area who have enrolled in courses at the Young Americans Center for Financial Education or have taken out loans from Young Americans Bank. The center teaches financial literacy and personal finance to people ages 6 to 21. It also runs entrepreneurship programs at 420 schools in Colorado and runs a summer camp for children in second through sixth grade.

When he was 6, Jack got his first account at the bank, which offers checking and savings accounts, certificates of deposit, lines of credit, credit cards and business loans to people 21 and under. It charges low service fees.

Earning money was Jack’s initial motivation for the stand because he longed for a $400 Lego Star Wars Death Star set that his father insisted he pay for himself. But there was an important nonfinancial perk to the project, too: “It was really fun,” Jack said.

From the start, Steve Bonneau wanted the lemonade stand to be a learning experience for Jack. Mr. Bonneau is a former nuclear engineer who has been an entrepreneur for more than 20 years. His current company, Buybak, buys and resells used consumer goods.

“We wanted to make sure that Jack wasn’t getting out the Country Time Lemonade, using cups we already had in our kitchen and ice from the refrigerator,” Mr. Bonneau said. “And then at the end of the day, whatever was sold was his profits, without taking out any expenses or learning the other side of it.”

Early on, Mr. Bonneau taught his son business basics. Now that Jack is in fifth grade and studies seventh-grade math, the lessons are more advanced. Mr. Bonneau said he guided Jack through wholesale pricing, applying for a sales tax license and establishing business relationships.

“It’s a collaborative effort,” Mr. Bonneau said of Jack’s Stands, acknowledging that his son’s age and the complexity of the business means there are things Jack is not yet capable of doing. These range from carrying and assembling the 40-pound wooden lemonade stands to solving business challenges like finding organic, locally made lemonade or meeting the requirements of new farmers’ markets they work with.

Photo

Jack counted the proceeds with an 8-year-old colleague after a shift at Bonneau’s cider and hot chocolate stand. Credit Nick Cote for The New York Times

In 2015, sales for the business were $25,000. This year, it plans to add several new stands in the Denver metro area, and one in Detroit; this expansion will be financed by a crowdfunding campaign.

Another successful business affiliated with the Young Americans Center for Financial Education and Young Americans Bank is Sweet Bee Sisters, a lip balm and lotion company founded in 2009 by Lily, Chloe and Sophie Warren, now ages 15, 13 and 11. Their products are sold online and in 15 stores in Denver, as well as at farmers’ markets and through representatives who make sales calls at large companies during the holidays.

A priority for the Warrens is to encourage and mentor other children. “Whether it’s business or sports, or whatever kids want to pursue, they can totally do it,” Lily Warren said.

So when Jack approached them a year ago to ask if he could carry their products at his lemonade stands, they agreed. They felt that his business ethos was similar to theirs, Ms. Warren said. When he showed or sold their products to other children, his message was: “‘Hey, I’m not the only kid out here doing this. You definitely can join this bandwagon,’ ” she said.

The bandwagon gained more momentum last winter when Jack set up two new stands in a crafts marketplace at a Littleton, Colo., shopping mall. One is a stand that sells apple cider and hot chocolate instead of lemonade, and the other, called Jack’s Marketplace, features products made by other children.

Sweet Bee Sisters and about eight other child-run businesses sold their wares at the marketplace stand during the holiday season. Two girls who started out selling apple cider and hot chocolate quickly caught the entrepreneurial bug and began making their own products — scarves, headbands and decorated picture frames and magnets — and selling them at Jack’s Marketplace.

Very young business owners have the advantage of abundant curiosity and resilience, traits coveted by older entrepreneurs. They’re also “young, ambitious, adorable,” said Maura McInerney, program coordinator for the Young Americans Center for Financial Education. But their youth can be a liability. “They’re not always taken seriously at first,” she said.

That hasn’t been a problem for the entrepreneurs at the Jack’s Marketplace stand in the shopping mall. According to Lisa Roina, who owns the company that runs the mall’s crafts marketplace, the children not only appear to have fun selling their products, they are good at it.

On weekdays and other times when the children aren’t able to work at the stand, she sends in a rotating cast of adults. But when the children return to operate the stand themselves, sales quadruple, Ms. Roina said.

“They can sell the heck out of their stuff,” she said.

Small-Business Owners Devise Creative Ways to Keep Workers

Samantha Martin, standing, owns Media Maison, a 14-person public relations firm in Manhattan: “I’m forced all the time to think about how to keep key people.” Credit Nancy Borowick for The New York Times

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Samantha Martin’s small-business nightmare typically stalks her on Gchat.

“It will be a Wednesday, and an employee messages, ‘Can we talk today?’” said Ms. Martin, who owns Media Maison, a boutique public relations firm in Manhattan. “They’ll tell me they weren’t looking, but someone approached them,” she said. “In this industry, if another company dangles $5,000 and an opportunity to work on a fashion show, your loyal employee can be out the door.”

Since any departure leaves her 14-person team short-handed for weeks, Ms. Martin tries to be proactive. She meets frequently with individual staff members, helps new employees pay first and last month’s rent, is generous with titles and promotions and offers benefits ranging from educational assistance to a free trip anywhere in the world after three years of employment. Last year’s recipient went to Paris.

“We don’t have a 401(k) and can’t always offer a big salary,” she said. “So I’m forced all the time to think about how to keep key people.”

With a tightening labor market, more entrepreneurs are facing similar challenges. A record number of job openings, with worsening skill shortages and a tendency among young adults toward briefer tenures, is forcing small-business owners to find increasingly creative ways to hold onto their best and brightest.

After rising in recent years, quit rates in private businesses held steady at just less than prerecession levels in 2015. But survey data from the Bureau of Labor Statistics, which looks at job openings and labor turnover by size of establishment, suggest that the number of employees voluntarily leaving small companies remains on the rise.

At businesses with fewer than 10 employees, for example, 1.8 million people quit in the five months through May, a 34 percent increase from the same period in 2014, the bureau’s data shows. In companies with 10 to 49 employees, resignations rose by 12 percent year over year, and, in those with 50 to 249 employees, the increase was 9 percent.

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In a June 2015 survey by the National Federation of Independent Business, 80 percent of employers reported they had difficulty finding, or could not find, the talent they needed. Even when they do find it, said Holly Wade, director of research for the organization, “issues come into play when small businesses can’t afford some of the bells and whistles bigger employers can.”

Colin Darretta, a former investment banker, knew when he founded WellPath Solutions in New York last year that he could not compete with a Google or Uber on pay. So in seeking engineering talent for his company, which makes customized nutritional products, he bypassed the Ivy League and hired a local developer from App Academy, in New York.

The fact that the candidate had taken a less traditional path, he added, may have made him better suited to a start-up. “Here was a guy who had developed an interest at a later stage and was willing to take a personal risk to pursue it,” Mr. Darretta said. “The key is looking where those big companies aren’t.”

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He has also made a point of spending one-on-one time with all 10 staff members and likes to capitalize on their interests. After a recent busy period, he took a star performer and a newly hired engineer, both big video game players, to a “League of Legends” event at Spring Studios.

Another company can still try to steal employees by offering more money, Mr. Darretta said. But the employee “wouldn’t be getting the flexibility and the other stuff,” he added. “A lot of the time, the other stuff is what matters to people, and it doesn’t cost that much.”

Most people who leave a company do not do so for more money. In a 2015 survey of 11,000 employees by the staffing company Randstad USA, the main reason cited for quitting was a lack of a career path or growth opportunities. Nearly half of respondents said work-life balance was the biggest factor motivating them to stay.

For any incentives to work over the long term, employees must be invested in a company and its mission.

Dr. Amy Baxter, an Atlanta physician who founded MMJ Labs in 2006, has six employees with advanced degrees on a shoestring budget. Her company developed Buzzy, a hand-held device that uses cold and vibration to relieve pain from causes as varied as hypodermic needles, carpal tunnel syndrome and plantar fasciitis, an inflammation of the band of tissue that connects the heel bone to the toes.

“We didn’t even get F.D.A. clearance until last year, which makes it all the more amazing that people have stuck with me with no promise of equity,” Dr. Baxter said.

She said flexibility and transparency helped. MMJ Labs’ manufacturing manager spent early years fitting her work hours around an infant daughter’s heart treatment. If Buzzy loses a customer, everyone is involved in figuring out what happened and helping to fix it. Outings like the company’s regular staff dinners and the all-expenses-paid Caribbean cruise that employees and their families took to celebrate selling the first 25,000 units do not hurt either.

But Dr. Baxter says she believes the main reason her original hires are still with her is their belief in the product and the ethics of the company, including the fact that the device is reusable and in keeping with the company’s concern for the environment. “If I made Buzzy disposable, some employees wouldn’t stay with me,” she said.

Knowing what really matters to employees, personally and professionally, can be critical to retention, human resources specialists say, and easy to learn in a small business.

When Brandon Baker and his wife, Carmela, founded Loveletter Cakeshop on Fifth Avenue two years ago, they knew they would be making wedding cakes for a affluent clientele where there is little room for error. So as soon as they realize they have an exceptional employee, Mr. Baker sits down with him or her to discuss career aspirations and creative interests so he can assign responsibilities accordingly.

“Sometimes just the act of asking is enough,” Mr. Baker said. “When you find talent you have to nurture it.”

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This can be challenging as an organization grows. Proxibid, which bills itself as the largest online marketplace for high-value items (like tractor-trailers and classic cars), has expanded to 167 employees since its start in 2001. Ryan Downs, the chief executive, also faces the dual challenge of finding young talent and luring it to Omaha, where the company is based. To do that, he says he has worked hard to maintain an open culture that offers opportunities for advancement.

He credits this with helping him retain the company’s top engineers when software developers have never been more in demand, or recruiters more aggressive. “You’re not going to stop recruiters coming around,” he said. “But if you give a technical person cutting-edge stuff to work on, we’ve found you can overcome other companies’ irrational prices.”

Michael Mulligan, a senior software engineer, who has been at Proxibid four and a half years, agrees. He says that although he hears from one or two recruiters every week, it would be difficult to match the opportunities of his current position, or the voice he has in the direction of the company. Proxibid, he added, also gets the culture right, with outings, support and companywide recognition of individual success.

“For me, that’s the biggest thing,” he said. “At other places, it was like I was just a number. I know it sounds cheesy, but this is the first company I’ve come to that truly seems to care if their employees are happy.”

Unfortunately, in the rush to serve customers and clients, communication can quickly fall by the wayside even when small-business owners know better.

David Niu, a serial entrepreneur, learned this the hard way when he was running BuddyTV. In 2012, a top employee quit, seemingly out of the blue. Frustrated and burned out, Mr. Niu took a break from the company. “It caught me off guard,” he said. “I kept thinking, if I had better tools maybe I could have prevented it.”

That led Mr. Niu to create Tinypulse to help other employers get a grip on retention issues. Tinypulse, which is based in Seattle, and similar companies like Culture Amp and BlackbookHR allow managers to solicit anonymous feedback from employees. This often provides an early warning that workers are unhappy. Today more than 500 companies use Tinypulse alone, the company said.

Other small-business owners still rely on the old-fashioned way of keeping tabs. At her public relations firm, Ms. Martin says she talks to her employees constantly and has them keep her cellphone number on speed dial. Most recently, she gave the people who have been with her the longest a share in her business.

“How many under-30-year-olds get to say they own something?” Ms. Martin asked. “But when you do find someone who is amazing and treats your business like their own you want to reward that.”

Her approach seems to be working. Ross Garner, the senior account executive she sent on a 10-day vacation to Paris last year, said he still could not get over the gesture. “Stuff like that,” he said, “makes you want to work at 110 percent for somebody.”