Who are “key employees”?
In the “good old days”, we could talk about
key man insurance and everyone would know what we meant. However,
in these days of political correctness, we have to call it
key person, or even key employee, insurance – it just
doesn’t have the same ring about it.
One good thing about having to re-think old ideas is, however,
that it gives us the opportunity to challenge our own preconceptions.
In this case the assumption is not that all “key”
employees are male, but rather that most businesses revolve
around the managing director, sales director or even a leading
salesperson.
In practice, today’s business environment makes this
no longer entirely true. There is no doubt that for most enterprises,
the person running the company will be vitally important to
its success and their loss through accident, illness or death
could have a major impact on the business. But there are many
others to whom the same might apply – and they can sometimes
be difficult to identify.
If we look at some examples, it might help; although since
we started writing on such topics seven or eight years ago,
things have continued to change. For example, where the IT
manager was once king in many SMEs, recent systems developments
mean that the loss of “the only person who understands
our system” is now less likely to be devastating. Conversely,
there can frequently be an individual within any business
– such as a pay clerk or accounts supervisor –
who works within the systems infrastructure but adds value
in the way they perform their duties that could be expensive
to replicate. This makes them a key person within the business.
The reason is that key people are not necessarily those who
are “high profile” or even client-facing. It is
those who perform a core task and would be costly and or time
consuming to replace, were they no longer available.
Recruitment takes time and even if the interregnum is filled
with a temporary employee, it is unlikely that they will have
the same skills as the previous incumbent; and even if they
do, they will be unaware of the shortcuts and other working
practices that are used.
As a general rule, it is always more expensive to recruit
a replacement than to pay the person currently doing a job.
Additional costs include: recruitment fees &/or advertising;
management time in the selection process; potentially higher
salaries; loss of continuity and thus productivity. Added
to this can be loss of staff and customer confidence.
For example, the loss of a finance director may not worry
customers, but the bank could easily become exercised over
the matter where borrowings exist.
It is possible to arrange insurance to cover the cost of
replacing key employees lost through death or incapacity,
but the service we offer to businesses includes helping to
identify precisely who are the key people as well as considering
alternative strategies before arranging any necessary insurance.
Where can my clients go for help?
If you would like us to review any of your clients’
employment strategies, please contact
us.
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