Family Employment Policies: Part One-The Basics

Creating business policies can resolve conflicts before they happen.  The family council and the board create policies that will serve as the glue that holds the business’s governance structure together. 

These policies/tools also help shape expectations that will minimize conflict because everyone will know the boundaries are between the various entities.  We refer to these developed agreements as “tools” in the sense of what you must have to build a strong structure.  It is important these agreements are developed collaboratively rather than being “handed down” to optimize psychological ownership by all the players.

Family Employment Policy

A common issue faced by families in business is how to ensure fairness of employment to family members and appropriate employees working in the business. This article describes criteria families should consider in developing their own family employment policies.

“Dad always wanted me to join the business and spoke as if there were no other choices for me,” reflects one young man. “I sometimes wonder if this is the best thing for me … but I’ve been here since high school and I don’t know if I could get hired anywhere else.”

Compare this experience with that of young woman in her thirties. “My grandfather founded our business and never considered the possibility that his ‘girls’ would join the business. But when my father and uncles began looking at our generation of six to eight kids who could be employed by the business, they decided we should all have the chance. I wasn’t at all interested in joining the business. However, after I finished graduate school, it seemed almost disloyal not to use my skills within the family. Now I feel like I got the job because of my ability, not just my family ties.”

“Well, I’m really frustrated!” offers a third family business member. “I worked my way up to a management position in our business after six years here. Now they’ve brought in my cousin who has no experience and he’s getting the same salary I’m getting. They said they feel that all of us in the family should earn the same amount. But he’s not contributing his share to the bottom line!”

All of these family employees are coping with problems that arise when family members join a business. A set of guidelines for entry into the family business provides structure and objectivity to decisions that can be emotionally laden and create resentment and confusion.

Employment guidelines must be tailored to the nature and size of your family and your business, as well as your family and business missions. It is important that everyone be clear about the employment guidelines, and that the family business applies them consistently.

Most advisors feel that family members should not be hired solely because of their kinship, but for their ability or potential to contribute to the business. Yet some 64 percent of family-owned businesses don’t require members entering the business to have qualifications or experience necessary for success. 

A survey of 45 family businesses with revenues of $100 million or less indicated that family members ranked competence as unimportant for family entry into the business. Some family businesses go to the opposite extreme, limiting employment to non-family members, in an effort to eliminate employment conflicts while maintaining ownership of the business as an asset to benefit family members.

However, with clear criteria for employment, the problem of nepotism (that is, advancing a relative on the basis of family ties rather than merit) can be avoided.

Part Two of the Family Employment Policy articles, "The Rules of Entry," will cover creating the rules based upon expert recommendations and examples.