What makes your family business tick? It might be the values and work ethic your grandparents infused in the fabric of the company. Or maybe it’s the brilliant idea your parents had that took the company to the next level. Or it could be the enthusiasm of the next generation, waiting to take the reins.
Or maybe it’s the ultra-talented non-family executive you were smart enough to hire to run the company’s day-to-day operations. If this is the case, you’d better figure out a plan to keep this individual happy, motivated and working his or her hardest on your family’s behalf.
Is Ownership the Answer?
It’s not unusual for non-family employees to play key roles in family businesses; it’s rare however that these “outsiders” stay as long as you’d like them to. After all, the writing is on the wall: Family members own the company, and they’ll never be family.
So is giving these employees an ownership stake the answer? Probably not. While it may seem like a good idea to treat these valuable employees “like family”, giving them stock in the company can create unwanted complications.
That’s because non-family shareholders don’t typically act like family shareholders. For example, family members tend to be more likely to leave profits in the company and focus on long-term growth. Non-family members, however, are understandably more interested in bigger dividends — they usually want their cash sooner rather than later.
Family members are also more likely to stick with the company for the duration of their careers and weather the ups and downs. Non-family employees — particularly very talented ones — simply don’t share the family legacy that keeps them tied to the business.
If a non-family shareholder leaves the company, this can create several problems. First, the non-family shareholder has no way to cash out his or her stock and realize the rewards you intended by giving the stock in the first place. Second, you’re now in partnership with a non-family, non-employee shareholder who will no doubt be voting on issues of importance to your family business.
Alternatives to Stock
If your goal is to keep the non-family employee onboard, there are several ways to do so without offering stock:
Compensate well. Money talks, and compensating the employee beyond what he or she could earn elsewhere is one obvious way to show your appreciation. Remember that compensation includes not only a salary, but other incentives as well. What does this individual value? Days off? Flextime? Trips? Dinners? Education? A generous package of cash and perks goes a long way.
Pay for performance. Performance-based bonus programs tie the executive’s pay to the company’s performance. Setting challenging but attainable goals and linking them to bonus dollars is an effective way to keep non-family employees doing their very best on your company’s behalf. When the company performs well, the employee benefits financially too.
Fund a pension plan. A traditional pension plan for important non-family employees allows the company to match the employee’s contribution and create a vesting schedule that motivates the employee to stay put.
Whatever incentive plan you choose, keep it simple — and keep your promises to your employees. Also be sure to discuss your incentive ideas with your DJB professional so that your plans can be created with tax advantages in mind.
We can help you design a plan to keep your key employees happy in their jobs and motivated to perform.