Welcome to the Use Case Podcast, episode 273. Today we’ll be talking to Kathryn and Rob from Keep Financial about the use case or business case for why their customers choose Keep Financial.
Keep Financial enhances the engagement, retention and performance of your most valued team members with vesting bonuses.
Give the show a listen and please let me know what you think. Thanks, William.
Show length: 27 minutes
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Kathryn Petralia | Rob Frohwein
As founders, Rob Frohwein and Kathryn Petralia had experienced their share of hiring issues, from lengthy recruiting cycles to high attrition. They wanted to find a solution that would not only curb today’s retention and recruiting issues, but bring long-lasting financial freedom to employees. Together, they embarked on a mission to find out what leaders in the human resources sector needed that employer-forgivable loans didn’t bring to the table. They approached that core audience with the idea of Keep Financial. HR leaders all said, ‘Hey, if this was available to us, we’d do it in a heartbeat. It’s just really hard to execute.’ Rob and Kathryn decided to take all the execution challenges out and so Keep was born.”
Welcome to Recruiting Daily’s Use Case podcast. A show dedicated to the storytelling that happens or should happen when practitioners purchase technology. Each episode is designed to inspire new ways and ideas to make your business better. As we speak with the brightest minds and recruitment in HR Tech, that’s what we do. Here’s your host, William Tincup.
William Tincup (00:25):
Ladies gentlemen, William Tincup and you’re listening to the Use Case Podcast. Today we have Katherine and Rob on From Keep Financial and we’ll be learning about the business case or the use case for why prospects and customers pick Keep Financial. So why don’t we start with some introductions. Katherine, why don’t you go first and Rob and then someone tell us what Keep Financial is.
Sure thing. Hey, I’m Katherine Petralia, co-founder with Rob of Keep Financial. Rob and I actually started a company before Keep that we ran for over a decade, which is a really long time and we grew it to over 600 people. We spent a lot of time working on issues around attracting and retaining talent and a lot of that thinking is what has gone into our new company Keep.
William Tincup (01:14):
Hey, well I’m Rob Furline, as Catherine said, co-founder with her in Keep Financial. And as Katherine mentioned, we are really trying to address the recruiting and retention issue that continues to persist. Even though it seems like we’ve got a lot of stress in the economy, there’s still just an incredible dearth of employees and very hard to hire the right people to fit in the right place and time for companies. So what our platform does is it allows employees early access to compensation they’ve not yet earned in exchange for vesting periods that are long enough to help companies really achieve their goals effectively. So really the desired retention period. From an employee’s perspective, they’re getting access to portions of capital earlier than they might have expected to, which helps them with challenges and goals they might have in their personal lives. For employees in exchange for that, they’ve guaranteed that they’ll be around the company for a period of time. There’s more complexity to it than that, but that’s it in a nutshell.
William Tincup (02:20):
Well, I love this idea and I just came back last week from Vegas and at HR Tech, 500 vendors and it was interesting to see the people that are doing Pay on Demand. There’s a number of folks that are doing Pay on Demand and the traditional older payroll plays, having to deal with this new way of employees wanting pay, doing with payroll. And so it started kind of in gig economy type jobs, Uber drivers, et cetera.
They could just tab out at the end of a ride at the end of a day, end of week, whatever, but it’s moved over to salaried employees on the pay side, which is fascinating. I’m sure it’s probably… If I was a CFO I probably wouldn’t see it as fascinating because they, they’re kind of made their money on float or whatever. So it’s interesting but y’all’s… What’s different about it, what I love is that you’re dealing with capital now. So if somebody’s on a stock option plan, et cetera, they don’t have to wait the four years or two years or whatever the vesting period is. They can tap into it earlier but they then have to recommit if I’m understanding it correctly.
Well… I think the way we think about it is there’s compensation that’s already happening today with lots of employers and actually we were at HR Tech too and it was a phenomenal experience. I had no idea how many companies were in this space and we were actually surprised by how few companies we saw in the compensation space with the exception of companies that helped do benchmarking for compensation, but actual compensation technology, there wasn’t as much of it.
All employers, they provide all different types of compensation and a lot of it is upfront compensation, there can be compensation that is a sign on bonus, things are traditionally early. There are annual pay increases, there is equity, there’s end of year bonuses, there’s lots of compensation that employees would like access to earlier potentially or in lieu of some of that compensation if it comes in the form of equity. So the idea is how can you put money in the hands of employees sooner? Especially 90% of all the jobs in the world are service jobs. These are hard jobs, there’s a lot of turnover. They tend to be lower wage. How can you give these people earlier access to larger amounts of capital they can use to build wealth and they can vest it over time so there’s a hook attached to you. They want to stay with you because they want to keep that competition that you’ve given them up front.
William Tincup (05:16):
I like this. So Rob, we’re looking at competition in a much broader spectrum than I just did with options or equity. It’s much broader than that. And so natural question I guess on the books, these are liabilities and so in some ways, it’s a good thing for the company to get some of the liabilities off their books, right?
So from a sort of tax and accounting perspective, what Kathryn talked a little bit about signing bonuses, relocation bonuses, things like that. You also have spot bonuses for employees to catch them up on compensation that frankly, if your company has not been paying at the level you should have been paying for the last three or six months. And then there are reactions to employees who are being poached by third parties. All those situations, you’re providing bonuses to employees. One thing you should really focus on is the retention on the back end. And how that works with action accounting perspective is usually when companies provide that cash to an employee, they have to record that expense right away and take it as a payroll expense. The way we’ve architected the company is you actually provide, we’re actually providing the capital to the employee directly.
We have a relationship with the employer that helps fund some of that typically and the employer does not have to take a payroll expense hit until that has been vested. And in fact, until it is vested, they’ve basically transitioned cash on their balance sheet to a receivable because they’re owed that money back if the employee should leave or whatever portion of that has invested at the time of departure if that happens. But what you’ll find in this, we talk sometimes a lot, spend a lot of time talking about what happens if an employee leaves. What you’ll find with this kind of benefit is your retention period for employees has been extended very significantly, number one and somewhat counterintuitively maybe the employees are actually committing to this and actually performing at a higher level simply because there’s goodwill associated with providing them with capital up front, cash up front. There’s also interest in making sure that this turns into a forgivable debt, this disappears, this obligation disappears. So performance tends to tick up pretty significantly as well.
William Tincup (07:50):
So Katherine, I’ll start with, I despise software categories because most companies defy, whether mislabeled or misunderstood, but Rob just said something interesting around benefits. So I could see this marketed by a company as a benefit, but I’m not sure you want to be in the benefit space, more probably in the financial wellness if anything. But where do you see yourself more importantly, where do your customers see you?
It’s interesting. I think we are… A benefit, it is a very generic term that can apply to a lot of things. If I live in town and my office is in town, my shorter commute time is a benefit. My company didn’t give it to me. It’s still a benefit from my perspective. Benefits are hard. They’re hard to… I think to quantify. I think we perceive ourselves as being in the compensation space. There hasn’t been a lot of innovation in compensation. The stock option is probably the last significant one from the late fifties, early sixties. We believe compensation technology, not payroll, but compensation, right? Structure and strategy, we think that is where we sit. Like I said, I was surprised at how a few companies we saw in that space.
William Tincup (09:10):
Yeah, I can tell you why you didn’t see as many as because there’s a show just specifically for comp professionals, it’s actually total rewards folks. So total rewards and recognition and comp gets lumped together. Larger companies and they have a conference and association called World at Work. They tend to spend kind of over index there. The folks that you saw at HR Tech, their comp product is all baked into a suite of products. So the Workday, Oracles, SAPs of the world and others all have comp but not in the way you’re thinking of it. They have kind of a historical compensation, kind of baseline using external data, internal data, working on pay compression issues, et cetera.
Y’all are like redefining compensation in the way that we think about it. So you did see them, but you didn’t see the amount of folks that you would see because no one at the show would be focusing specifically on comp because out of the total attendance, how many of them were pure comp buyers? Not that many.
So it’s an interesting point you bring up and look… When it comes to… We ran a company where we hired over a thousand people. We spent more than a third of our time on recruiting and retention issues or addressing issues because we didn’t have the right people in the right place at the right time. That’s the reason we started the business. When we started Cabbage, which was a small business FinTech, I had no FinTech experience, Katherine did. Neither of us had small business experience and it was really interesting jumping into an industry where you really didn’t know anybody. I think there are advantages and disadvantages and the advantages are the fact that you can approach it with a completely fresh perspective and try to disrupt and reinvent the space.
William Tincup (11:01):
A hundred percent.
Disadvantage is people go, hey, we don’t need you. We’ve been knowing this for years, we know how this works.
William Tincup (11:09):
You’ve just been doing it poorly years.
I think most of the innovation actually comes from outside the industry. I’ve been studying for 25 years. So I can kind of say this just where, because I know where some of the bodies are buried. The companies that basically come from FinTech or xome out of sales or ops or people that don’t have HR recruiting experience. Generally the ones that do the most innovative work. So I concur on that side. I think the thing is, again, kind of going back to your customers, your prospects and basically explaining to them, here’s comp in a way that you think of it and here’s comp in a way that you should think about it from, as you said at the very beginning, Rob, a recruiting and retention perspective. This is how you’ll get talent, this is how you’ll keep your top talent.
I know people are going to wonder, so we may as well talk about where do y’all make money? Where do y’all get paid?
You want me to handle that Katherine?
William Tincup (12:11):
That’s all Rob.
Yeah, what we do is… So structure this product for employees as effectively. We enter into an agreement with the employer. We structure the cash we’re providing to the employees as a 0% APR loan. The goal here, just to make it absolutely a billion percent clear, is never to make a dime off an employee. From an employee perspective, we charge 2.75% of the total bonus flow that goes through the platform from them and that’s really from start to finish. So the idea is put whatever number of employees on here with keep bonuses and we’ll charge you at 2.75% of that amount but we’ll manage that employee being on the platform from the very start of time until, ultimately they’ve fulfilled their obligation, their besting obligation or they have left the company and we’ve helped them repay the amount that they owe. And so we try to keep it simple and keep it reasonable.
William Tincup (13:17):
So is there a platform fee for the employers?
We are not charging any kind of SAS fee or anything-
William Tincup (13:26):
Like that at this time. Well you can look at that, but for right now our focus is to work with a lot of companies, help them. A lot of companies, what they’re doing is they’re saying we have one or two hotspots here where there’s a few people we’re trying to hire, there’s a few people that are being poached by other employers and we’ve helped them hire those people or help them keep those people. That’s where the name Keep comes from obviously. And then they start looking at it as part of their compensation planning and budgeting for the following year or quarter or whatever may be arising. So, that’s how it’s gone so far.
William Tincup (14:10):
And Katherine, who’s the buyer right now, cause it’s probably all over the map, but just who are the early adoption folks that you’re talking to that are converting?
Well, every employer is facing this challenge right now. It’s not limited to a particular size of business or industry. We are seeing that there’s more turnover, if you will in, as I mentioned earlier, service related jobs.
Obviously healthcare is a huge area, retail and restaurant companies like that. And then the people who we’re talking to who really understand the challenge, everybody in HR is dealing with this, but the CFO really cares. They’re the ones who are part of the compensation decision for a smaller company, the CEO cares but the finance team is a really important part of the equation.
And I’m going to second that. We have one customer signing up right now and so I’ll blur some numbers here to make sure they’re not known, but they actually went through a RIF about two months ago where they let go a sort of a 14 or 15% of their employee base. And we went through this early days at Cabbage as well. There was never a time in our life when we needed to retain people more than when we let some other people go, unfortunately. What they’re doing is they’re providing key bonuses to a whole bunch of their technical staff because people got really spooked by the layoff. That’s a great use case and it’s one that people wouldn’t naturally think of because you think about using recruiting and retention when you’re growing, but it’s just as important when you’re going through some kind of challenge in the business.
William Tincup (16:03):
I love that. So let’s do buy side stuff for just a couple minutes. Katherine, what’s your favorite part of the demo when you show people Keep for the first time? I’ll shorten it to Keep, I know it’s Keep Financial. When you show them the demo for the first time, they’ve never seen your software, they kind of get what you do, et cetera. There’s always, to me, there’s always this aha moment when they get somewhere and they’re like, oh, okay. What is that for you?
I think there are two things. One of the exciting moments is the flexibility, that this is a product that literally works for every single type of employee that you have. It can work for all types of compensation that you previously offered and it’s configurable to meet your particular needs, whether it’s around a straight up product that moves competition up front, invests over time, or whether it’s around performance that you can actually align your goals and the employees goals with the way they earn and invest compensation that you give them.
I think the other thing that’s fun and exciting is when they realize the DEI component here, because again, so many jobs are service related jobs, there’s higher turnover. That turnover is not just bad for the employer, it’s bad for the employee. They give up compensation because they’re changing jobs, they’re not always moving for more money and they lose an opportunity to build wealth and to do things like payoff student debts or make investments or buy a home. So the DEI component I think gets a lot of employers really excited that they can deliver to all types of employees the same types of benefits that have historically been reserved for your higher compensated employees.
William Tincup (17:45):
I love that. Anything to add, Rob?
Yeah, I mean actually I’m just going to… I hate this term. Double click. Do you like that term, Katherine? I know you must hate it.
I think you know how I feel about that term.
William Tincup (17:57):
It’s a drinking game. Every time someone says it, you have to have a shot.
Yeah. So the performance item that Katherine brought up, just to just put a little bit of a spotlight on that for a moment is you might have a team, say it’s a product or an engineering team that all have key bonuses. So they’re all vesting and maybe they’re vesting over two or three years to the key bonus they received.
If you’re trying to hit product goals or deadlines, for example, for that team, you can actually accelerate their vesting and say, hey look, if we get this out by October 31st, oh that’s cool. We trim a quarter or a year or whatever off the key bonus. And the reason that’s so impactful to employees is, it gets them to the next opportunity that much faster. Keep is a way to really very specifically dial in retention and performance into this. And the other thing that Catherine did mention as well, which is DEI is just, I always imagine this and a lot of situations being used for the roles I just mentioned, product and engineering, but there’s huge challenges companies are having within distribution centers, customer care centers, front of house and restaurants.
I’ve been really surprised, I shouldn’t have been, but I’ve been really surprised by how many people want to address those challenges they’re having where they’re seeing retention rates or attrition rates I should say, that exceed a hundred percent.
William Tincup (19:33):
So Katherine, success stories without brand names or company names or anything like that would just, so your favorite kind of go-to story that you tell people, and again, no names or any of that type stuff, but just some color to that would be great.
Yes, of course. And that’s fine. To put it in perspective, we literally… Rob had the idea for keep at the very end of last year. We raised money to support it in February and built it and launched it this summer. Our success stories are new successes, but what I think that the one that we’re most excited about is in the healthcare space. It is so challenging to get nurses in particular into ships. We talked to somebody recently who has a daughter who’s a nurse and she is… I live in Atlanta, she happens to also work at a hospital in Atlanta and her hospital is paying her 50 dollars an hour over her base pay, which is 30 dollars an hour just to show up. So the opportunity to work within healthcare to help keep healthcare workers at a facility that’s providing really critical and important care, I think that’s an exciting opportunity and a really rewarding success.
William Tincup (20:54):
And a conference you should probably go to next year, if that’s a category that you intend to explore or dominate, is Astra. It’s the American Association of HR Professionals in Healthcare. I’m butchering that, but basically all it is HR, and all of HR in healthcare and they have their own.
Going to bring you to all the conferences. We’re just going to hire you.
You can take us to the conferences, introduce us to the people. That’s perfect. Now
William Tincup (21:26):
We know we’re this relationship, as said as we said, pre-call, everyone can be boss. We’ve come full circle. Rob, I wanted to-
There you go. That’s right.
William Tincup (21:36):
I wanted to ask you about, and lastly, and for both of y’all kind of what are the objections? Because I deal with a lot of sales teams, especially on the recruiting side is objection and response stuff. So what are the universe of nos? What have you found? I know it’s new. So what have you found so far that are some of the objections that you’re trying to help people work through?
Well, you know what, there was one that I got yesterday, it wasn’t really an objection, but a realization. This individual said they’ve seen this benefit deployed in some specific parts of Europe before.
William Tincup (22:11):
And she said that what happened was it became so commonplace, it became table stakes and it lost its differentiation. And they said, so what’s your response to them? I said, I can’t wait…
William Tincup (22:25):
If we could be so lucky.
But the real response to that is… Well then yeah, I totally agree. So if you’re going to have to adopt it, which is what you say you’re going to have to do…
William Tincup (22:39):
Get there early.
I think it’s better to be on the front end of that than on the back end of that and be creative about how you do it. So I think that was one objection. And then another one somebody said is they said, well look, I get this, but so what. Am I just trying to turn this into a legal requirement to keep somebody to stay around because incentive, if they don’t, they said, if they don’t want to stay with us, I’ve built a great culture. I built a fantastic culture and this guys kind of…
William Tincup (23:15):
Anyone that says that to you in the future Rob, send them to me. Let me have five minutes with them.
Well, they just basically said, if they don’t want to stay with us, well then I don’t want them here. My response was more or less, it’s extremely Pollyanna of you, but the reality is people have needs.
William Tincup (23:39):
Support, they have parents to help out. They have all these things they’re trying to accomplish, and cash is still very important.
William Tincup (23:50):
Well, and Katherine mentioned the DEI, both of y’all mentioned the DEI component. Everyone defines emergency differently. So, one person’s emergency is not others. And so giving them access, but I also look at it like what you said earlier about the motivation kind, the incentives. I live in Texas, and this is how private highways get built, is they literally incentivize the contractors to get it done within a timeframe and then they get a bonus. And guess what? Highways get built in Texas.
It is, it’s a strong motivator.
William Tincup (24:24):
Yeah, yeah. Not shocking. Kathryn, I wanted to give you a bite that objection. What are outside of the things that Rob’s already mentioned, is there any other things that you’ve heard from folks?
I think my favorite objection is, well, why don’t companies just do this themselves? And it’s funny. Do you know where I don’t hear this is from the companies themselves.
William Tincup (24:49):
I was going to say.
I hear this…
William Tincup (24:53):
Exactly. It’s the same reason we don’t make our own clothes. Thanks. Thanks for playing.
That’s exactly right. You’re exactly right. And so we’ve talked to so many companies, we’ve been one of those companies, we’ve been part of a big company. We understand that it’s really hard to follow through on that to make sure that you can take the last paycheck. But what if they still owe you 20 grand? You got somebody in HR who’s like, Oh crap, I got to remember to send an email to Joe. That’s right. He owes me 20 grand.
William Tincup (25:18):
There’s also credibility lent with a third party owning it that on both sides, that’s great. That can go to the third party and go, hey, Keep’s taking care of this for you. And then the employee has the same thing. They don’t have all that kind of emotional baggage. They can easily just go and work through you to get to whatever financial goal that they need to hit. Go ahead. Rob, I interrupted you.
No, I don’t think I said anything there, but I one hundred percent agree with both of you because this stuff is difficult and what ends up happening, if somebody tries to do this, first of all, tries to do it themselves, perfectly fine to try that, is you’re always building to a very singular model and what we’ve done is create a platform that really accommodates any variety of vesting schedules you may want, any type of employee. And then we manage all of the regulatory compliance documentation in every state. All the friction that happens, onboarding and off boarding folks, and management of that, which is challenging. I think that’s the part where we can come in and really add a lot of value.
I was talking yesterday… Oh, I’m sorry, I’m jumping in. I was talking yesterday to someone who’s a founder of a 40 year old technology company and super successful, super amazing entrepreneur. And she said, oh, so you’re taking care of the messy bits.
You got it.
William Tincup (26:52):
Yes and you don’t want to do this yourself, nor even the largest companies don’t have the capabilities to do all the things that you mentioned in terms of compliance in each state. They don’t want to do this. It sounds like a good idea. Why don’t we do this? You don’t want to do this and oh, by the way, you don’t have the capabilities to do it effectively. This has been absolutely fantastic.
Thank you so much for coming on the podcast.
Thanks for having us.
Absolutely. And thanks for everyone listening to the Use Case podcast. Until next time.
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William is the President & Editor-at-Large of RecruitingDaily. At the intersection of HR and technology, he’s a writer, speaker, advisor, consultant, investor, storyteller & teacher. He's been writing about HR and Recruiting related issues for longer than he cares to disclose. William serves on the Board of Advisors / Board of Directors for 20+ HR technology startups. William is a graduate of the University of Alabama at Birmingham with a BA in Art History. He also earned an MA in American Indian Studies from the University of Arizona and an MBA from Case Western Reserve University.