What is Key Person Risk? (2024)

As a business leader, you exert a lot of effort in planning. You plan for positive things like financial growth, new products, hiring new employees, and moving into better offices.

But you also plan for negative things like employee conflicts, economic downturns, and unexpected emergencies.

Another negative scenario your business should prepare for is key person risk (sometimes known as key man risk).

As an executive health provider, key person risk is something we regularly help companies with through executive physicals and executive health programs.

For many of our corporate clients, managing key person risk is one of their primary reasons for coming to us.

So, what is key person risk exactly? How can you manage it?

Defining Key Person Risk

First, before you define key person risk, you have to define (and identify) your key persons. Key persons most often include:

• C-Suite executives (chief executive officer, chief financial officer, etc.)
• Other employees in leadership positions (vice president and director-level employees)
• Employees that possess an indispensable skill set unique to the company
• Managing Partners and founders who have an equity stake in running the business
• Owners of the customer relationships who are responsible for keeping key clients happy
• Rising stars who are making a name for themselves in the company.

If your company can’t afford to lose them tomorrow, they must be considered a key person.

Key person risk is the risk to your business operations if one of these critical employees is out for an extended period of time and for any reason.

It might be a months-long absence due to a serious health-related reason. It might be a permanent departure because they were poached by one of your competitors.

Regardless, losing them will limit or halt your operations and could negatively impact your company’s bottom line.

Up until February 2020, a key person risk strategy was a nice-to-have feature of business planning. Something is on the minds of business leaders everywhere, but seemingly a little too distant to take widespread action.

However, like many things, COVID-19 altered the definition of key person risk. Instead of a distant, nice-to-have feature of business planning, it’s now a more relevant topic for all businesses to consider.

Key Person Risk Examples

The core of key person risk remains the same: can your company lose one of your top employees and not miss a beat?

How key person risk manifests itself in your business operations can vary. It’s about being prepared for events such as:

• Your CEO passes away from a heart attack, and the company is suddenly left without a chief executive.
• Your top salesperson is involved in a serious car accident and won’t be able to sell for months.
• Another executive receives a cancer diagnosis that will put them on leave for months.
• One of your top business development executives gets a better offer from a competitor.
• An employee who has a skill set no one else at the company has decided to go out on their own.

If your company can relate to any of these scenarios, you should be thinking about putting a plan together for managing key person risk.

3 Strategies for Your Company to Manage Key Person Risk

Once you decide you want your company to work on managing key person risk, it’s time to get down to business. Your company can manage key person risk using three primary strategies.

1. The insurance strategy. This involves protecting your company through insurance policies, whether it’s a life insurance policy taken out on your top employees or a business disability insurance policy.
2. Executive health benefits strategy. This strategy attacks key person risk from two angles – helping your top employees improve and maintain their health, reducing their risk of a serious health issue, and showing them how much they are valued, reducing the risk of them leaving for a competitor.
3. The “culture” strategy. Culture is a classic corporate buzzword. Everyone makes it a priority, and it can make a difference when it comes to managing key person risk.

How PartnerMD Helps You Manage Your Key Person Risk

As mentioned before, since 2003, we have worked hand-in-hand with companies large and small to reduce key person risk.

Some companies rely on our executive physical program to evaluate the health of their top employees on a regular basis and help identify risk factors before symptoms start.

And others combine executive physicals with ongoing concierge primary care – turning their executive physical program into an executive health program – to ensure that their most important employees have access to the top-notch, convenient, hassle-free primary care needed to fit their busy lifestyles and keep them at peak productivity as long as possible.

Interested in exploring an executive health program to help manage your key person risk? Click below to request a custom proposal.