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Helping Family Businesses
Prosper Across Generations®

Contrasts in Employment Policies

By Jennifer M. Pendergast, Ph.D.

Family business experts promote the value of writing policies to govern the relationship of family to business.  By putting policies on paper, family members are forced to come to a consensus on their views.  And policies ensure consistency in how family members are treated.

One of the most important policies a business-owning family can have is a family employment policy.  Just as the name indicates, this policy outlines the requirements of and expectations for family members working in the business. 

These policies typically address the following categories:

  • Philosophy of family involvement in the business
  • Who is included in the definition of family (e.g., lineal descendants, spouses)
  • What schooling and prior experience a family member must have to be eligible for a position
  • How family members will be compensated
  • What types of positions will be available to family members
  • Whether or not family members will be given priority over non-family members


While the categories addressed are similar, the choices families make within these categories are very different.  We reviewed a number of family employment policies to identify their similarities and differences.  What we found may surprise you. 

Take, for example, the philosophy on family involvement in the business.  Here are two very different approaches:

“Relatives should not be encouraged to work for Company A.  In general, employment of relatives is not good for the company, as it is bad for the morale of other employees, even if done fairly.”

 In this case, the family feels strongly that the potential negatives of having family members employed can outweigh the positives.  There are even examples of large, family-owned enterprises where family members are prohibited from working in the business.

Contrast that approach with excerpts from two other family policies:

“We view the participation of multiple family members in the business, with our family values, as an advantage competitors will find difficult to replicate.”  And, “Current owners and leaders of Company B strongly believe that continuing family ownership and employment in the company will provide the best assurance of maintaining those values and principles that led to the company’s success.”

In the case of the family who own Company B, their policy even specifies that shareholders should be notified of open positions at the company and encouraged to apply. 

You would think that these differing philosophies would lead to very different approaches to qualifications that family members should have to work in the business.  However, this is where we see more similarity.  For families who choose to write a policy, most cite an expectation of a college degree for management-level employment.  Many also require several years of work experience outside the family business (anywhere from two to five or more). 

One family took a creative approach to the challenge of finding meaningful work experience outside the family business: 

“Outside work experience is urged by some family and not felt essential by others.  Next-generation persons interested in company employment should each interview two members of the family who have each perspective.  Then they must reply in writing with their reactions to those different views – explaining what they heard and proposing a personal development plan that overcomes those concerns expressed by the family interviewees.  In other words, if someone wants to come directly in, they must propose such things as how to get an independent sense of achievement outside of the business or get appraisals from an industrial psychologist for personal feedback, etc.”
 
While some families develop internship programs to introduce family members to the business and provide broad exposure across a number of areas, others dislike internships.  They feel that it is difficult to manage internship programs and also hard to find positions that will challenge family members.  They also feel that managing a family intern puts a non-family employee in a difficult position. 

Some policies explicitly state that positions will not be created for family members, often highlighting that positions will go to the “best-qualified employee,” regardless of whether he or she is a family member.  An opposite approach, which Amy Schuman of the Family Business Consulting Group, Inc.®, has discussed, is to create a rotation system whereby positions are created for young family members to work in various areas of the business, akin to a management training program.  She will have an article on this in the May issue of the Family Business Advisor®.

There is general consensus in employment policies that address compensation – with compensation at the market rate for the position as the primary rule.  Where families differ is in the access to positions provided to family members as opposed to the rewards for those positions.  Some families say that positions will not be created for family members, while others say they will do their best to create a suitable position. 

Here are some other unique aspects of family employment policies: One family requires family members to take a Myers-Briggs personality test before entering the business to help guide their careers.  Another has a policy that outlines opportunities for family members to learn about the business, starting in grade school.
 
As you can see, there is no right answer to an employment policy.  If you are thinking about putting one on paper for the first time, considering your philosophy on family involvement in the business is a good place to start.  This philosophy will govern how you approach many areas, such as qualifications and compensation.  Whatever you decide to include in your policy, your family will benefit as much from the process of writing it as you will from having the rules specified for future generations. 
 

 

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