Family Business: Hiring and Working with Family

Balancing business objectives with family harmony can be a delicate task. These three strategies can help.

When you own a business, working with family members can be a mixed blessing. You may face balancing:

  • A desire to provide family members with the opportunity to work in the business

  • Concern that certain family members who work in the business may be underperforming or may not be qualified for their roles

  • The intent to treat non-family employees fairly and incentivize top performers to grow with the business over the long-term

In our experience, implementing the following three recommendations will help lay the foundation for addressing these challenges.

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Adopt Formal Employment Policies for Family Members

Develop, adopt and communicate well-defined, formal employment policies for family members working in the business. The policies, which the family can develop in collaboration with senior members of your management team and board of directors, should at a minimum address:

  • Qualifications required (e.g., experience, education, certifications, skills) to work in the business

  • Expectations regarding entry level positions and career path opportunities

  • Roles, responsibilities and job descriptions for key management positions

  • Criteria for evaluating employees for purposes of compensation and promotion

Adopting formal employment policies for family members helps ensure that family members working in the business are qualified for their roles and reduces the risk of having to demote or terminate a family member. Also, it reassures non-family employees that they will be treated fairly and have an opportunity for career progression in the company.

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Provide Ways for Family Members Who Don’t Work in the Business to Contribute

Find other ways for relatives who may not otherwise be qualified to work in the family business to contribute, including:

  • Providing input on the business either formally (for example, through a “family council”) or informally during family meetings about the business

  • Inviting certain family members to learn about the company firsthand by visiting the company and meeting with the management team or board of directors periodically

  • Participating in family philanthropic activities, serving on a committee of the family council or assisting in planning family events

Frequently updating family members who are not part of the management team with information on the business and providing them with opportunities to provide input and voice concerns will help ensure family unity and promote a business culture that upholds the family’s values and legacy. 

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Create Incentives for Non-Family Employees

Consider opportunities to incentivize non-family employees to remain with your family business over the long term so that they recognize that not being part of the family will not impede their success.  A few alternatives we have seen business owners use include:

  • Creating an employee stock ownership plan (ESOP) that provides employees with equity in the business

  • Granting stock options or other incentive-based awards (e.g., stock appreciation rights or “phantom stock”) to key members of the management team to give them upside potential as the business grows

  • Entering into employment agreements with certain employees to create customized compensation arrangements to give top employees comfort that they will be protected financially in the event that the company is sold

Providing these opportunities for non-family employees will help the business attract, motivate and retain high caliber talent and ensure a pipeline of future leaders.

Reconciling the needs of your business with the priorities and dynamics of your family can be difficult. But based on our experience, the above practices will significantly improve your odds of striking the right balance. For help implementing them or access to additional family business resources, please contact one of our advisors.     

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Our advisors can help you develop family employment policies.

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Disclosures

This information is not intended to be and should not be treated as legal, investment, accounting or tax advice and is for informational purposes only. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel. All information discussed herein is current only as of the date appearing in this material and is subject to change at any time without notice.

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