How-To Tip
Identifying Key Employees
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The goal of Gallagher’s proprietary Workforce Evaluation methodology is to assess the
effectiveness of an employer’s benefit program in driving strategic organizational objectives.
Workforce Evaluation places a special emphasis on identifying the needs of key employees*.
Understanding the characteristics of the key employee group helps employers to develop
focused, sustainable total rewards strategies aimed at talent development and retention.
But many employers ask: How do we identify key employees?
KEY EMPLOYEES – A WORKING DEFINITION
Also referred to as “key talent” or “critical personnel”, this is a group of employees within an organization that drives a
disproportionate amount of value creation in comparison to their peers. These are the employees who are key to
successful accomplishment of the organization’s primary mission and vision, without whom the organization would have
limited chances of achieving its objectives. This group of employees is also typically the hardest to recruit and develop
since they possess a set of well-honed, advanced skills.
TOP 3 COMMON REACTIONS TO ADDRESS
1. “All Senior Executives.” Organizations may struggle with exactly who should be identified as a key employee. An
immediate response we sometimes hear is “all senior executives.” Certainly, most or all senior executives may meet
the definition above. However, in any successful company, there must be other employees in the organizational
hierarchy who would also meet this definition. (And there may be some members of executive management who, in
fact, do not meet the key employee definition, though it may be politically difficult to make that determination.)
2. “Multiple Key Employee Groups.” Some companies identify several distinctive groups as key employees. From an
analytical perspective, it is possible to run the Workforce Evaluation analysis multiple times using different key
employee selections. In fact, looking at the data from these multiple perspectives might be very enlightening.
However, if your ultimate goal is to provide some level of differentiation in total rewards aimed exclusively at key
employees, the selection process may need to be more focused.
3. “We treat everybody equally.” The concept of key employees is not intended – but may sometimes be superficially
perceived – to suggest discriminatory profiling. In fact, it is no more discriminatory than the idea of rewarding
employees based on performance and value to the organization. Most successful organizations report that they
identify a key employee segment and develop programs specifically designed to better engage that segment, as well
as to target external recruiting pools where individuals with similar characteristics can be found. However, it is
important to test benefits and compensation programs for potential discrimination based on legal rules. Gallagher
helps employers to avoid those pitfalls throughout our consulting engagement including our proprietary Workforce
Evaluation analysis.
* Workforce Evaluation is still a valid methodology even if key employees are not effectively identified. But the
approach is infinitely more valuable analytically and as a foundation for total rewards strategy when this
determination is made.
© Gallagher Benefit Services, Inc. 2012
How-To Tip
Identifying Key Employees
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TOP 4 METHODS FOR IDENTIFYING EMPLOYEES
1. Position, title, or job function. This is the most common way to identify key employees. For instance, in a
technology company, software engineers might be identified as “key.” In a retail organization, the group may be
defined as store managers.
2. Performance metrics. This approach can work across (A) the organization or (B) within a given job function. Example
A: all employees who rank “Outstanding” in a 5-point formal performance appraisal system. Example B: the top 10%
of sales representatives in terms of revenue sold.
3. Compensation level. We’ve seen this simplified approach applied in organizations who found it difficult to find
another definition for key talent. This reflects the thinking the level of compensation reflects the amount of value
the company places on that employee. Thus, a business consulting firm where many functions contribute to the
company’s output may define its top 5% compensated employees as “key.” Firm partners with ownership stakes
tied into their compensation would be excluded to avoid skewing the analysis.
4. Subjective definition. Depending on the organization makeup and purpose, key employees can be determined in
purely subjective terms. In this instance, a small company committee may be tasked to select the top 10% of
employees across the organization as key employees using a combination of factors, including those described
above.
The table below provides a comparison of the different methods:
Method
Postives
Negatives
• Simple and fast
• Effective in organizations driven largely by a single
function (or a limited number of functions)
• Ignores the likely presence of key employees in
other functions
• Would identify poor performers in key positions as
key employees
Performance
• For organizations with a performance pay program,
consistent with the total rewards strategy
• Theoretically consistent across the organization
• Acknowledges employees who significantly
contribute to business success
• Requires a high degree of consistency and
effectiveness in execution of performance
appraisals or application of other performance
metrics across the organization
• If based on performance appraisal, will tend to
favor those employees whose managers may be
“easy graders”
Compensation
• Simple and fast
• A possible answer for organizations who struggle to
find another means of defining key employees
• Assumes that pay policies are consistent and truly
linked to individual performance and
organizational value
• If done well, a more thorough analysis that
acknowledges intangibles as well as objective
measures
• Could use a mix of factors, or even a “weighted”
approach
• May be very inconsistent across the organization,
or appear as favoritism based on non-objective
factors
• Selection of group to identify key employees may
be sensitive
Position
Subjective
Properly identifying key employees for the purposes of running a Workforce Evaluation analysis is a unique exercise for
each business. Your Gallagher consultant will engage you in a process of discovery and discussion about your
organization, its structure , strategic goals, market position, and a variety of other factors. On the basis of this
discovery, we will make recommendations on the most appropriate means to determine key employees.
© Gallagher Benefit Services, Inc. 2012