Family employment and compensation are a potential source of conflict in any family business. All too often, family members are employed and compensated because they are family, not based on their contributions to the business.
One of the key elements in any business succession engagement is to establish and enforce a family employment policy. This policy spells out the criteria for hiring and employing family members. A family employment policy helps instill a business-like attitude for family members entering the business. It also minimizes the resentment often encountered by key nonfamily employees if they see family members getting (at least in the nonfamily employee’s eyes) compensation and perks in excess of fair pay based on their performance.
The family hiring policy outlines the minimum requirements family members must fulfill in order to be considered for employment in the family business. The policy may include requirements such as—
- Educational Requirements A family member may be required to have a college degree in agriculture, marketing, accounting, or project management.
- Employment Requirements A family member may be required to work for a number of years for another company. In some industries, family business owners have an established network that provides employment for younger generation family members in similar businesses located in other geographic locations than the family business.
A family member’s employment in another company not only seasons the family member in an environment where he must prove him/herself to nonfamily members but it also allows him/her to bring fresh ideas to the family business upon his employment.
- Need Requirements The hiring policy should include a provision that a family member will not be hired except to fill an existing job for which he has the required skills and experience. In other words, a job will not be “created.” Hiring family members only in response to a need helps ensure they develop a businesslike attitude toward their employment.