Financial incentives that make you stand out more and lead to long-term retention

Financial incentives that make you stand out more and lead to long-term retention

You can get more out of an investment then just more money.

Employers often believe that paying part variable pay and one part steady is the way to go and then there are employers like Dan Price, who cut his own 1 million dollar salary to pay for an increase in pay to $75.000. 

We all know that a good salary is good for employees mental health, can reduce stress received from personal environment and so much more. We know that it's good to pay more then what you have to because it's a sign of recognition and status. By giving more, you get more. But the thing is, as soon as something is common practice it rarely ever serves as a differentiating factor. Which in turn means the commitment, engagement, trust or motivation you get out of it gets reduced drastically. 

However there are other ways of giving your employees, financial benefits. 

To stand out from the competition and attract and retain top talent for the long-term, some employers rely on some very creative compensation tactics.  

One of those tactics is a forgivable loan. Under this type of arrangement, employers offer an employee a loan that will be forgiven if that worker is able to meet certain terms. Generally, at least one of those terms is that the employee stays at the company for a certain length of time. But employers can also work performance standards into the terms of the loan as well.

This is impactful because you not only give it when they need it, relieving their stress and worry, but you are also able to adapt the form of the loan to suit your culture. Perhaps you'd like the loan to be paid back in revenue generating ideas, where you even give them a budget to achieve this with, in so doing creating growth, trust, motivation and commitment. There are many ways in which employers can customise the idea formulated concretely below to fit their culture.

Here’s an example of how this type of structure works, courtesy of The Emplawyerologist:;

Say an employer offers one employee a $50,000 forgivable loan because it wants to retain that worker for at least five years.

Under the terms, every year that employee stays with the company $10,000 of the loan is forgiven until the five years are up and the loan is completely forgiven. So if the employee leaves after one year, she is only on the hook for $40,000 of the $50K loan (plus interest). The $50,000 is offered up front as a tax-deferred lump sum and the employee can use it in any way she sees fit.

Tax implications ( US )

Forgivable loans do include certain tax implications employers need to be aware of. According to the IRS, the loan amount doesn’t count as compensation as long as it represents a true debt agreement between the employer and the employee with the proper corresponding documentation.

This documentation should include:

  • A promissory note or some type of a legally binding agreement between the employer and the employee receiving the loan
  • a forgiveness/repayment schedule, and
  • clear terms for the forgiveness, repayment, default and interest (based on market rates) of the loan.

This documentation should never include any wording that refers to the loan as a bonus, award or compensation or the loan could become taxable compensation by the IRS.

The loan amount, however, is taxable as income to the employee over the life of the loan, e.g., as the loan is repaid or forgiven over time.

In other words, in the $50,000 loan example above, only $10,000 will be taxable as income each year for the life of the loan.

This example is based on the US tax laws, so discuss the potential opportunities of this with your legal team, employees and leadership. Find your own creative way to incentivise that are aligned with your strategy and culture and overcome whatever obstacles may lie in your path. A consistent and congruent approach, reached cooperatively always works best!

I would love to hear your thoughts and opinions on incentives and by what you believe your employees get motivated. So leave a comment, send a mail or give me a call!

Adatapted by Jens Geets
Original by Jared Bilski