ILMA Compoundings October 2017 - 42

BUSINESS HUB

Family Business
Employment Policies
Evening the playing field for the next generation
By Nicole Bettinger

D

eciding when and how to
transition your business is
not an easy choice to make.
Deciding to transition the business to
a family member can make that choice
even cloudier.
There are several tools to make bringing the next generation into the business
smoother. For instance, the family
employment policy is a tool that clearly
lays out the expectations and requirements of joining the family enterprise.
"Family employment policy" may
sound formal and intimidating, but in
reality, it takes away some of the stress
that arises in a business in transition and
sets the next generation up for success.
At its basic level, it is an agreement on
the general principles and guidelines surrounding the development of the next
generation and their involvement in the
family business. It is simply a road map.
A sound family employment policy
addresses the following key areas.
THIS MATTERS TO WHOM?
Start by putting boundaries around
who qualifies as a family member and
thus will be covered by the family employment policy. Some families choose
to define a family member as all shareholders, spouses, children and legally
adopted children. Others require a
family member to be a lineal descendent of the founder or any of their
spouses, domestic partners, children,
etc. Each family is unique and has a
different makeup. The definition of a
family member should mirror that.
HOW DO I GET THERE?
Many families have found that requiring members to spend time working
outside of the family business prior

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OCTOBER 2017

| COMPOUNDINGS | ILMA.ORG

to working in the family business
can lead to great success in the next
generation. Gaining this outside
experience opens family members up
to how other businesses function and
operate. They are held accountable by
a supervisor who isn't related to them
and get the chance to spread their
wings on their own - without familial influence. While working outside
of the business isn't always a realistic
option or desire of the family, it can be
a valuable learning opportunity.
Some families also have a minimum
education requirement that must be
met to be eligible for employment,
designed around the needs of the
business. This could be a degree from a
technical or traditional university or a
professional certification or distinction
such as a plumbing journeyman card
or professional engineering license.
Whatever the specific requirement
may be, it is important to decide early
and be transparent so that the next
generation has a clear understanding
of what is expected of them.
Other family businesses create a
next-generation education curriculum as part of the pre-employment
development process to ensure their
family members are getting access to
the knowledge and skills they need to
be successful contributors to the business. There may be dedicated time to
discuss the family's history or why the
business was founded and its evolution
leading up to today. It may include
information on what the business
does, who its competitors are, industry
trends and an introduction to the
company's strategic plan. There may

be sessions surrounding basic finances,
communication, conflict resolution
skills, trusts and estate planning.
There should also be an overview
of the family's governance structures.
While the next generation might not
have been involved in the creation of
plans such as a family employment policy, members should understand why
such guidelines were implemented and
what those guidelines mean for them.
WHO EARNS WHAT?
Instituting a compensation structure
as part of your family employment
policy helps to keep compensation
fair and gets away from arbitrarily
deciding who earns what. As much
as parents may try, being completely
objective when determining a child's
pay is not easy. Setting parameters
around what family members will earn
ahead of time will take emotion out of
this decision.
However, each family business varies
on how it views compensation. It
may be based on fair market value or
competitive as compared to nonfamily employees with similar duties.
Others choose to give family members
a bit of a compensation boost with
the expectation of greater ownership
responsibility, paying them more than
nonfamily members.
READY OR NOT, HERE I COME
To enter employment at the family
business, most companies require
members of the next generation to
apply for an open position with real
roles, responsibilities and accountability. Policies often state that positions
will not be that positions will not
be created just for family members.
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ILMA Compoundings October 2017

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