Category Archives: Business Succession

A business is only as strong as the people who help build it. That truth is simple, but its consequences are not.

The best way to retain key employees is to combine meaningful leadership, competitive total compensation, visible career opportunity, and a carefully designed executive benefits strategy that connects the employee’s future to the company’s future.

That does not mean offering every possible perk. It means understanding what your most valuable people need, identifying what keeps them committed, and building a plan around the goals of your business.

Why does this matter? Because your best employees are usually the most recruitable. Competitors know their value. Recruiters know their names. And if one of them leaves, the cost may extend far beyond replacing a salary. You may also lose institutional knowledge, client relationships, revenue, culture, and momentum.

Here are seven practical strategies to help you retain key employees and restore alignment between your people and your business.

1. Identify Which Employees Are Truly Essential

Retention begins with clarity.

Not every employee needs an executive benefits plan. Not every high performer is a mission-critical employee. Your first step is to identify the people whose departure would materially affect your company’s value, growth, succession, or client relationships.

Ask yourself:

• Who drives a significant portion of revenue?


• Who owns important client or vendor relationships?


• Who possesses knowledge that would be difficult to replace?


• Who is being prepared for a future leadership or ownership role?


• Who would be expensive or disruptive to replace?


• Who could leave and create a succession problem?

This is where a business owner must look beyond job titles. A key employee may be a senior executive, technical specialist, physician, partner, producer, or operating leader.

Once you know who matters most, you can focus resources where they will have the greatest effect. A targeted plan is often more effective: and more cost-efficient: than adding generic benefits for everyone.

Our Executive Benefits Guide for Business Owners explains how selective benefits can be designed for owners, executives, and other key people who drive the company’s value.

2. Listen Before You Design the Benefit

Many retention efforts fail because the employer assumes it already knows what employees want.

You may believe your top executive wants a larger bonus. They may be more concerned about retirement income. You may think an equity grant is the answer. They may want family protection, liquidity, or a clearer path to future ownership.

The right question is not simply, “What can we afford to offer?”

The better question is, “What would make this person feel valued, protected, and invested in staying?”

Have direct conversations. Use stay interviews. Ask what your key employees value now and what they want their future to look like. Their priorities may include:

• Supplemental retirement income


• Life insurance for a spouse or family


• Greater protection from income disruption


• A meaningful connection to company growth


• Additional compensation beyond qualified-plan limits


• A path toward ownership or succession


• More certainty about their long-term role

This conversation creates a foundation for a benefit that feels personal rather than manufactured. It also helps you avoid spending money on an arrangement that looks impressive on paper but does not change behavior.

3. Close the Retirement Income Gap

A standard 401(k) is important, but it may not be enough for your most highly compensated employees.

Contribution limits, nondiscrimination rules, and the structure of qualified plans can create a significant gap between an executive’s current income and the income they may need in retirement. That gap can become a source of frustration: especially when the executive is contributing aggressively but still cannot maintain their intended lifestyle.

A nonqualified deferred compensation plan, or NQDC plan, can help address that problem.

Depending on the design, an NQDC arrangement may allow a select group of executives to defer compensation beyond qualified-plan limits. It can also include vesting schedules and distribution elections that support long-term retention.

Common approaches include:

• Employee-funded NQDC: Allows executives to defer additional salary or bonus.


• Employer-funded NQDC: Provides a discretionary benefit tied to service, performance, or retirement.


• 401(k) Mirror Plan: Helps restore contribution opportunity for executives who have reached qualified-plan limits.


• SERP: Provides a supplemental executive retirement benefit based on a defined formula or objective.

You can review the broader structure in this complete guide to deferred compensation and NQDC plans. For employer-funded arrangements, see our overview of Employer-Funded NQDC Plans, as well as the dedicated guide to a 401(k) Mirror Plan.

These plans must be designed carefully. Section 409A compliance is essential. Improper elections or distribution provisions can create accelerated taxation, penalties, and unnecessary risk for the executive.

This is one reason technical expertise matters.

Matt Schiff helped draft the laws governing these arrangements from 2003 to 2005 as a ranking member of the AALU’s NQDC Committee, alongside Michael Goldstein. He was in the room where the rules were being shaped: not simply reading them after the fact.

You can also hear Matt discuss these issues with Dan Hogans, formerly of IRS Treasury, through The Perfect Plan^® Podcast and official YouTube channel.

4. Create an Ownership Feel Without Giving Away Control

People often work harder when they feel connected to the outcome.

That does not mean every business should issue actual equity. Ownership can create dilution, governance complications, valuation questions, and future disagreements. For many business owners, the goal is to create the economic feeling of ownership while preserving control.

That is where phantom stock may be appropriate.

A phantom stock plan can provide a future cash benefit based on the value or performance of the company. The executive does not receive actual shares or voting rights, but the arrangement can help them participate in the value they help create.

This can be powerful for:

• Privately held corporations


• Partnerships


• Professional practices


• Family businesses


• Companies preparing for a future sale


• Businesses developing a future leadership team

The benefit is usually tied to specific conditions, such as continued service, performance, a change in control, retirement, or another defined event.

Read more about Phantom Stock and creating an ownership feel without giving away the farm.

5. Align Benefits With the Company’s Culture and Intent

A retention plan should feel consistent with the way your business operates.

If your culture values long-term service, the plan may use a vesting schedule. If your company emphasizes measurable performance, benefits may be connected to defined goals. If family protection is central to your values, life insurance and survivor benefits may be more important than a purely cash-based arrangement.

There is no universal best benefit. There is only the best structure for your goals, your employees, your entity type, and your culture.

Split Dollar and Restricted Executive Bonus Arrangements can sometimes help create a benefit that is personal to the executive while remaining structured for the business. These arrangements may address life insurance protection, future income, retention, and employer cost recovery: but they require careful coordination.

Our guide to The Perfect Plan^®, Split Dollar, and REBA explains the broader concept.

The plan must also account for employer-owned life insurance rules, including IRC Section 101(j), when applicable. Notice, consent, documentation, and policy design should be addressed before implementation. Your attorney, accountant, TPA, and benefits advisor should work together from the beginning.

6. Give Key Employees a Future They Can See

A talented employee may leave because they cannot see what comes next.

Retention improves when a key employee understands how their role can develop over time. That future may include increased responsibility, participation in strategic decisions, leadership development, ownership transition, or a defined retirement benefit.

This is especially important when your company is approaching a transition. What happens if a senior executive retires? What happens if the person expected to replace them is not ready? What happens if a partner dies and the business is suddenly dealing with a surviving spouse?

A benefits strategy should connect to your broader succession plan. Our guide on how executive benefit needs evolve from startup to succession explores these questions.

You should also consider a Supplemental Executive Retirement Plan when the goal is to provide a defined future benefit for a senior leader.

The message is clear: “We see your future here, and we are willing to invest in it.”

7. Review the Plan Before Circumstances Force You To

Retention plans should not be created once and forgotten.

Your business changes. Your employees change. Tax laws change. Ownership goals change. The person who was once your second-in-command may become your successor. A high performer may become a partner. A company may move from growth mode into acquisition or succession planning.

Review your arrangements regularly with your advisory team. Look at:

• Whether the key employee’s role has changed


• Whether the benefit still matches the employee’s priorities


• Whether vesting and distribution terms remain appropriate


• Whether the company can recover or fund the intended cost


• Whether the arrangement continues to support succession


• Whether compliance requirements are being met


• Whether the plan reflects current business value

For corporate entities, Corporate Owned Life Insurance may be considered as part of a broader funding and cost-recovery strategy. It should never be treated as a substitute for thoughtful plan design, proper documentation, or professional advice.



The best retention strategy is not a single product. It is a coordinated system.

The Best Retention Strategy Starts With Your Goals

So, what is the best way to retain key employees?

Start by identifying the people who are essential to your future. Listen to what they value. Build a visible path forward. Then coordinate compensation, retirement income, ownership feel, family protection, and succession planning into a structure that works for both the executive and the business.

That is the essence of The Perfect Plan^®: reverse-engineer the solution from the outcome you want.

Your goal may be to keep a top executive, prepare a successor, protect a family, fund retirement, or preserve the value you have spent decades building. The right plan can help you address more than one of those goals at the same time.

The five questions are worth asking now:

1. What if I end up in business with a widow?


2. What if I need a business buy-out?


3. What if my top talent leaves?


4. What if a senior executive retires and replacement costs are much higher?


5. What if I run out of retirement money?

Sit back, grab your coffee, and take an honest look at what keeps you up at night. Then, when you are ready, begin with a business valuation and planning assessment through RISR or schedule an initial conversation with Matt Schiff.

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Focus keyphrase: What is the best way to retain key employees through coordinated executive benefits and long-term retention strategies?

If you are five years away from retiring or selling your business, you are standing in the only window that still gives you real leverage. Not the twelve months before a letter of intent — by then the buyer sets the terms, the tax structure is largely locked, and your key people have already figured out that something is happening. Five years out, almost everything is still adjustable. The exit planning checklist below is built for exactly that window.

The owners who capture the highest multiples and keep the most after tax are not the ones who negotiate hardest at the closing table. They are the ones who spent five years quietly engineering the business so the closing table was a formality. Here is what that looks like.

The Five-Year Exit Planning Checklist

Years 5 to 4: Establish a Baseline You Can Actually Defend

• Get a real valuation, not a rule of thumb. "Three times EBITDA" is not a plan. You need a defensible number built from normalized earnings — adjusted for owner compensation, personal expenses running through the company, one-time items, and related-party rent.


• Clean up the financials. Buyers pay a premium for three years of consistent, reviewed or audited statements. Start the clock now.


• Identify your value killers. Customer concentration above 20 percent, a single key supplier, expiring leases, missing contracts, deferred capital expenditures, and — the big one — owner dependency.


• Answer the honest question: can this business run for 90 days without you? If the answer is no, you do not own a business. You own a job that will be discounted at sale.


• Set the target number. Work backward from the after-tax proceeds you need to fund the rest of your life. That number, not the market, defines whether you are ready.

Years 4 to 3: Build the Retention Architecture

Nothing destroys deal value faster than a key executive walking during due diligence. Buyers pay for a management team that stays.

• Name your critical few. Usually three to six people. Not the org chart — the people whose departure would change the purchase price.


• Put a plan in place that pays for staying through the transaction. A nonqualified deferred compensation plan or SERP with vesting tied to a change in control aligns your executives' payday with yours.


• Consider equity-feel without equity. Phantom stock lets a key executive share in the growth in enterprise value — and get paid at the sale — without diluting your ownership, complicating your cap table, or handing a minority holder consent rights over your own deal.


• Or make it simple and portable. A Restricted Executive Bonus Arrangement gives the executive a benefit they can see and touch, funded with employer dollars, with a restriction that keeps them in the seat.


• Mind the 409A trap. Deferred compensation that accelerates on a sale must fit within the change-in-control rules of Section 409A. Get the definition of "change in control" and the payment triggers right in the document — not in a side letter three weeks before closing. A 20 percent penalty tax on your best executive is a terrible closing gift.


• If you fund with company-owned life insurance, satisfy 101(j) first. Employer-owned life insurance requires written notice and consent before the policy is issued. Miss it, and the death benefit that was supposed to be tax-free becomes taxable income. This is not fixable after the fact.

Years 3 to 2: Engineer the Tax Structure

• Revisit your entity choice while you still can. S corporation, C corporation, and partnership each produce a very different after-tax result on the same headline price.


• Look hard at qualified small business stock. For C corporation stock, Section 1202 can exclude a substantial share of your gain from federal tax. Under the 2025 changes, stock issued after July 4, 2025 gets a 50 percent exclusion at three years, 75 percent at four, and 100 percent at five — with a per-taxpayer cap of $15 million and a $75 million gross asset ceiling at issuance. Note the symmetry: a five-year runway is exactly the holding period for the full exclusion. Miss the window by a quarter and the cost is measured in millions.


• Front-load deductions in your highest-income years. A cash balance plan can generate six-figure annual deductions for an owner in the final high-earning years before a sale, moving money out of the corporate wrapper and into a protected retirement bucket at a discount.


• Model asset sale versus stock sale versus installment sale. Buyers want an asset sale for the step-up; you usually want stock. That gap is negotiable — but only if you know what it is worth to each side before the LOI.


• Evaluate personal goodwill. In the right facts, a portion of the purchase price allocated to personal goodwill is taxed once, not twice.

Years 2 to 1: Residency and Estate Tax Positioning

This is the step most owners skip, and it is frequently the most expensive one.

• Understand where you are domiciled — and what it costs. The federal estate tax exemption in 2026 is $15 million per person, $30 million for a married couple, at a 40 percent top rate. That leads a lot of owners to assume estate tax is someone else's problem. Then they look at the state.


• The state thresholds are dramatically lower. Massachusetts starts at $2 million. Oregon at $1 million. Illinois at $4 million. Washington near $3 million. New York sits at roughly $7.35 million with a "cliff" that eliminates the entire exemption if you exceed it by more than 5 percent.


• Inheritance taxes are a separate problem. Pennsylvania taxes transfers to adult children at 4.5 percent, siblings at 12 percent, and others at 15 percent — with no meaningful exemption. New Jersey, Kentucky, Nebraska, and Maryland have their own versions.


• If you plan to move, move early. Changing domicile is a facts-and-circumstances test, and high-tax states audit it aggressively. Establishing residency two years before a sale is a plan. Establishing it two months before is an invitation.


• Do your gifting before the business is worth what it is about to be worth. Transferring non-voting interests to a trust while the valuation is lower — and while discounts for lack of control and marketability still apply — moves future appreciation out of your estate at a fraction of the eventual cost. Once a letter of intent is signed, that window closes.


• Fund the liquidity. An irrevocable life insurance trust holding a properly structured policy keeps the death benefit outside the taxable estate and gives your heirs cash to pay the tax without a fire sale.

The Final Year: Stress-Test the "What Ifs"

Every plan above assumes the sale happens as designed, on schedule, with you alive and healthy. Run the other scenarios: you die before closing, you become disabled, your co-owner dies, your buyer walks, your key executive leaves, the multiple compresses by two turns. Confirm your buy-sell agreement is funded, current, and consistent with your estate plan. A twelve-year-old buy-sell with a fixed price on the first page is a lawsuit waiting to happen.

Where RISR Fits

Most of this work stalls at the same place: the owner does not have a current, credible number for what the business is worth today, so every downstream decision — how much to gift, whether the retention plan is sized right, whether the after-tax proceeds actually fund retirement — rests on a guess.

We use RISR to close that gap. RISR pulls directly from tax returns and accounting data, normalizes earnings for owner compensation and one-time items, and produces an equity value using capitalization of earnings, EBITDA multiples, and revenue multiples. From there it becomes a planning instrument rather than a report:

• What does this business need to be worth for me to walk away and never worry about money?


• How much of my net worth is trapped in one illiquid asset — and what happens to my family if that asset stops working?


• What is the gap between today's value and my target, and which specific levers close it in five years?


• What is at risk if I die, become disabled, or lose a partner before the exit?

That last set of questions is the whole point. Planning for all of life's "What Ifs" is not a slogan — it is the difference between a valuation that sits in a drawer and a plan that survives contact with reality. Once the number is real, the retention plan, the tax structure, the gifting strategy, and the estate liquidity all get sized correctly instead of approximately.

Start the Clock

Five years is enough time to do all of this well. Two years is enough time to do some of it badly. If you are inside that window, the most useful thing you can do this month is work through this exit planning checklist and get a defensible baseline valuation and a written list of what stands between that number and the one you need.

Schedule a five-year readiness review and we will build your RISR valuation and What-If analysis together. You can also download our executive benefits planning guides or listen to The Perfect Plan® Podcast, where we walk through how these structures get reverse-engineered for real companies.

Schiff Executive Benefits has spent nearly two decades designing nonqualified deferred compensation, SERP, split dollar, phantom stock, and COLI-funded retention structures for closely held businesses. This article is for general education and is not legal, tax, or investment advice. Consult your own advisors before acting.

It is often said that a business is only as strong as the foundation upon which it is built. You have spent decades pouring your sweat, late nights, and creative energy into your company. You have survived market crashes, global shifts, and the daily grind of management. But here is an undeniable truth: building a business is a labor of love, yet leaving one should not be a labor of grief.

For many business owners, the "exit" feels like a distant shore. However, the reality of business succession is that it often happens when we least expect it. Whether it is a sudden health crisis or a partner deciding to walk away, the stability of your legacy depends entirely on a document that is likely sitting in a dusty drawer: your buy-sell agreement.

Are you certain that document will protect your family? Does it guarantee that you won't end up in business with a widow? Or worse, does it inadvertently hand over your hard-earned equity to the IRS?

At Schiff Executive Benefits, our mission is Restoring Alignment and Retention. We believe that a plan is only as good as its execution. Today, let’s walk through the common pitfalls that keep business owners up at night and how you can secure your professional legacy.

The "What If" Reality Check

We often ask our clients five core "What If" questions. Two of them are particularly relevant here:

1. What if you end up in business with your partner’s spouse?


2. What if you need a business buy-out tomorrow but don’t have the cash?

If you don't have a properly structured and funded agreement, these aren't just hypothetical scenarios: they are impending financial disasters. A buy-sell agreement is essentially a "business will." It dictates who can buy the departing owner's share, at what price, and where the money will come from. Without it, or with a flawed one, you are inviting litigation and chaos into your boardroom.

Mistake #1: The Ownership Trap (Redemption vs. Cross-Purchase)

One of the most frequent business owner issues we see involves the choice between an Entity-Purchase (Redemption) agreement and a Cross-Purchase agreement. While both aim to solve the same problem, their tax and legal implications are worlds apart.

The Redemption Model

In a redemption or entity-purchase agreement, the business itself buys the life insurance policy on each owner. When an owner passes away, the company receives the death benefit and uses it to buy back the shares.

• The Pro: It is simple. Only one policy per owner is needed.


• The Con: The surviving owners do not receive a "step-up" in tax basis. If you eventually sell the company, your tax bill could be significantly higher because your cost basis in the shares remained the same, even though you now own a larger percentage of the company.

The Cross-Purchase Model

In a cross-purchase agreement, the owners buy policies on each other.

• The Pro: When a partner dies, you receive the insurance proceeds personally (tax-free) and use them to buy the deceased partner’s shares. This gives you a "step-up" in basis, potentially saving you millions in future capital gains taxes.


• The Con: It can become administratively complex if there are many partners. If you have four partners, you might need 12 separate policies to cover everyone.

Which is right for you? There is no one-size-fits-all answer. Often, we utilize a cross-purchase partnership or a "Trusteed" cross-purchase to simplify the administration while retaining the tax benefits. Failing to analyze this choice is a mistake that often isn't discovered until it's too late to fix.

Mistake #2: The IRC 101(j) Compliance Trap

This is the "Life Insurance Warning" that many generalist advisors miss. Under Internal Revenue Code Section 101(j), if a business owns a life insurance policy on an employee (including owner-employees), specific notice and consent requirements must be met before the policy is issued.

If you fail to comply with 101(j), the death benefit: which you expected to be tax-free: could be treated as taxable income. Imagine needing $5 million to buy out a partner, receiving the check, and then realizing the IRS wants 37% of it.

This is what we call the "Employer-Owned Life Insurance" trap. Compliance requires:

• Informing the insured in writing that the employer intends to insure their life.


• Disclosing the maximum face amount for which the employee could be insured.


• Obtaining written consent from the employee.

At Schiff Executive Benefits, we specialize in navigating these regulatory waters to ensure your COLI (Corporate Owned Life Insurance) strategies remain a source of security, not a tax liability.

Mistake #3: Using a Stale Valuation

When was the last time you valued your company? If your buy-sell agreement uses a fixed dollar amount from 2018, you are playing a dangerous game.

If the business has grown, the surviving partners may be getting a "steal," leaving the deceased partner’s family under-compensated and likely to sue. If the value has dropped, the company might be forced to overpay, potentially bankrupting the business.

We recommend a dynamic valuation formula or a requirement for an annual appraisal. Your legacy deserves an accurate price tag. Business values fluctuate; your agreement must be agile enough to keep pace.

Mistake #4: The Funding Gap

A buy-sell agreement without funding is just a piece of paper with good intentions. How will you come up with the cash to buy out a partner?

• Cash on hand? Most businesses don't keep millions in idle cash.


• A bank loan? Banks are often hesitant to lend to a company that just lost a key partner.


• Installment payments? This puts a massive strain on future cash flow and leaves the departing family at risk if the business fails.

This is where life insurance buy/sell agreements shine. Life insurance provides immediate, tax-free liquidity at the exact moment it is needed. It creates the "certainty" in an uncertain time. By using COLI or personal policies, you ensure that the surviving partners keep the business and the departing family gets their fair value immediately.

The Power of The Perfect Plan®

Navigating these complexities requires more than just an insurance agent; it requires a team of advisors who understand the intersection of law, tax, and corporate finance. This is the philosophy behind The Perfect Plan®.

We don't just sell policies; we help you engineer a succession strategy that stands the test of time. We look at the "point of no return": the moment when a triggering event occurs: and we work backward to ensure every piece of the puzzle is in place today.

Have you considered what happens if a partner becomes disabled rather than passing away? Most buy-sell agreements are silent on disability, yet the statistical likelihood of long-term disability is far higher than premature death. Our team at Schiff Executive Benefits looks at the holistic picture to ensure no "What If" goes unanswered.

Take the Next Step

The unstable nature of today's economic environment means that waiting "until next year" to review your succession plan is a risk you cannot afford. Economic shifts and tax law changes are happening at an accelerated pace.

Are you making these common mistakes?

• Is your agreement funded?


• Is it 101(j) compliant?


• Does it offer a step-up in basis?


• Is the valuation current?

If you aren't 100% sure of the answers, it's time for a professional review.

Sit back, grab your coffee, and let’s have a conversation about your professional legacy. We invite you to join us for a consultative review where we can explore how to bring your buy-sell agreement into alignment with your current goals.

Don't let the foundation you've built crumble because of a technicality. Let's work together to ensure your business continues to thrive, your partners stay protected, and your family is provided for: exactly the way you intended.

Restoring Alignment and Retention. It’s not just our tagline; it’s our promise to you.

Ready to secure your future? Contact us today to learn more about how we can help you implement The Perfect Plan®.

Learn more: planning your business succession.