A report published last year by the Institute for Family Business concluded that employees of family-owned businesses have greater job satisfaction and loyalty to the firm than those working within non-family businesses. This should give family businesses an advantage in recruiting and retaining staff.
However, recruiting the right senior people can be harder for a family firm because the cultural fit is so unique and the business may be constrained in what it can offer candidates. How, then, can family businesses recruit and retain the senior people they need?
Selecting the right person is crucial for a family business, not least because there will be sensitivities about bringing an outsider into the family team. Once you have found the right person they may stay with the business for years but how can you find them in the first place?
– be clear about the position to be filled. Identifying skills gaps can be difficult for families, requiring honesty about the strengths and weaknesses of the existing family management team. It may be helpful to get external assistance – either coaching family members to develop into roles or identifying weaknesses in the team.
– consider the long term needs of the business. If, for example, a key family member is approaching retirement, will the non-family manager be expected to run the business during a transitional period?
– set out the role clearly for the benefit both of the candidate and the family. If the candidate is expected to take a significant role in the running of the business they must be given the authority to do so and be properly incentivised for their success. Decision-making within the business must be sufficiently transparent to enable the manager to do their job. This may require the business to adapt – board meetings may need to become better organised and appraisal systems fairer and more transparent. Sometimes family business owners need to adapt as much as the person who is coming in, so careful thought needs to be given to how the business may need to change.
– Plan well in advance. Working out what you need and then finding the right person (both in terms of experience and character fit) is unlikely to be a quick task.
Hand-in-hand with recruiting is the decision on how to reward key team members. There is a delicate balance to be struck, not least because there may be existing sensitivity about the way in which family members are remunerated.
The obvious components of a remuneration package are salary and bonus but family businesses should think more widely than this.
Many family businesses will not contemplate issuing equity (shares or options) to non-family members because of the risk of dilution of control and ownership. However, family businesses should keep an open mind.
Equity incentives can give senior managers a sense of common purpose with the family. Also, they will have no cash flow impact on the business and can be structured to lock in senior employees – aiding retention.
In addition, properly constructed schemes can also ensure there is no loss of control (non-voting shares) or dilution of ownership (buying back shares on departure), that the employee only participates in the growth they create (growth shares) and that the impact on dividends paid to family members is minimised (shares with different dividend rights).
Moreover, equity incentives can be flexible (it may be possible to grant shares or options in a subsidiary group company) and can be very tax efficient for the company and the employee. The Enterprise Management Initiative (EMI) scheme is particularly useful, as is the new employee shareholder scheme under which employees pay zero capital gains tax when they sell their shares.
If granting equity to non-family members is ruled out, it is possible to use cash incentives which mirror the effect of share ownership – so-called “phantom share” schemes. Alternatively, the company might consider non-cash incentives, such as a company car, health insurance, holiday entitlement or flexible working hours/location. Family companies may also consider the use of flexible benefits to enable the employee to tailor their remuneration package to fit their personal profile, maximising the value the employee receives from the cost to the employer. The competition may not be able or willing to give employees as much flexibility.
Above all, family businesses can capitalise on the unique strength of providing an excellent working environment, with a committed team and strong relationships. For this to work it will be essential to ensure that the non-family manager has a clear role, is included in decision making, and that workplace policies are fair and transparent.
Douglas Streatfeild-James is a senior associate at leading law firm Burges Salmon
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