“Since day one we have offered an uncapped bonus system to our senior managers,” explains Hughes, “This has meant that many of our senior managers earn as much money or more through their bonuses as they do from their basic salary, based on the success of their particular units.”
But aside from making a lot of people very wealthy, Hughes believes these financial incentives have dramatically helped boost staff retention.
“I don’t really have a defined hierarchy as such, but if we took my 25 most senior managers at any given time, I haven’t lost a single one to the competition in 20 years.”
With 2,000 staff working across its 16 centres, Cygnet is now Britain’s second largest independent provider of acute psychiatric services as well as the largest outsourcing provider to the NHS of acute and intensive care psychiatry.
The company also incentivises staff through its share option scheme which it introduced in the early nineties. To reward employees who have helped add value to the company, Cygnet awards them once or twice yearly with the option to purchase a number of company shares within between three and ten years of the grant.
Today 450 of Cygnet’s managers and staff own 11 per cent of the business. “Proportionally speaking, this is by far the largest of any healthcare company in Britain,” explains Hughes.
Hughes says employees have been rewarded on average every couple of years. “It’s paid off in liquidity events in 2000, 2002, 2004 and now 2008. So they’re getting used to a consistent cycle of seeing capital gains coming up in the pipeline.” “We also introduced a share purchase scheme five years ago where employees who bought one share at a discount, would get another one for free. The scheme allowed them to buy their shares using pre-taxed money, rather than taxed and there was a maximum contribution of £1,500 over the five years.
And if they did that on day one, on the basis of the striking price of the last month, they’d have made £30,000 virtually tax free, because of the way the incentives work between capital gains exclusion and the relief on the gains on these schemes.”
In light of this very handsome payout, Hughes is confident that the uptake of employees on the share option scheme is going to be considerably higher in future years. Cygnet’s management are now looking forward to expanding the employee share equity scheme going forward because as Hughes explains: “We know it results in the recruitment and retention of the best people in our industry.”
The company has grown at an average of 25 per cent compound growth during the past eight years to hit £80m in turnover this year and £24m in ebidta earnings.
To read about John Hughes’ unique leadership style, click here
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