What do you do with a longtime loyal employee your company has outgrown? It's a painful question that nearly every successful company owner has to grapple with at some point. Here's how two company owners resolved the problem:

Let the employee go. Dennis Flynn, Heritage Asset Management, a real estate company in Dallas; 68 employees: "Longtime employees have given a lot of heart and a lot of time to the company. They've sacrificed, deferring compensation in the early years. What happens is that the company grows. You tend to hire more professional people -- not necessarily better people, but people who have their own opinions and want to be heard as much as the old guard is.

"We spent a year trying different solutions with one employee. But we work as a team, and the effect of this longtime employee's ego was that we lost ground as a team because he put his nose in everybody's business. The new people didn't see all the contributions this person had made in the early years. They just saw him as a terrorist.

"The predicament stopped our company for six months. My other employees beat on me to make the hard decision, to do what was best for the company. What I realize now is that this employee loved the company the way it used to be -- not the way it was going to be."

Try to find the employee a new spot. Mitch Covington, Terra First, a provider of hazardous-waste services in Vernon, Ala.; 60 employees: "My company was on shaky financial ground. I had to make some changes with people to be more efficient. One was a longtime employee who happens to be a minority stockholder. I just told him exactly what I felt: I didn't think he was qualified for the job he had, and I didn't think he felt qualified. So I found a position for him in a new venture we were starting, where he fit better. I gave him a lot of responsibility, but at the same time I told him, 'Don't expect to move up next week. You're going to be here for a while.'

"I had another case, a truck driver -- the second employee we had hired. He had some health problems, so he couldn't drive and had been moved into an office position. But I could get somebody else to do that job for much less. So I cut his pay and made a new position for him. He didn't like that, so he left." -- Ellyn E. Spragins

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