It is natural for family members and in-laws to be drawn to a business because of both the environment and the potential benefits. It is also natural that these aspiring businessmen and women have assumptions as to where they will start, what they will be doing, what their pay will be and what their title will be in relationship to both employees and other family members. These assumptions are dangerous. Pre-employment assumptions are a potential source of frustration that can devour enthusiasm and spoil the beginning of and perhaps an entire career. Incorrect assumptions can also create family friction that can handicap the prospects of future harmony and teamwork. A Family Business Employment Policy provides family members a clear understanding of employment requirements and compensation to preclude assumptions that can lead to problems. This document gets Mom and Dad "off the hook" regarding the employment of children and, even more importantly, regarding the employment of in-laws.
A few years ago I worked with an automobile dealer who had a very successful business involving three dealerships. He and his wife had three wonderful daughters, none of whom had any interest in the automobile business. The youngest daughter was a school teacher married to a football coach, the middle daughter was a nurse and the oldest was a homemaker married to an attorney. My client called me and said he had been talking to the attorney son-in-law about coming into the business and asked me what I thought. I responded that it sounded fine but, in the past, I had witnessed awkward times when siblings and in-laws entered a business. I further stated that realities could more easily be distorted when an attorney entered private business. Attorneys are generally confident in their training and ability and tend to think that all they have to do is change offices and they will not miss a beat in their new professional standing as a business manager. I then asked my client what he expected would be the employment and compensation criteria for his son-in-law. He responded that he felt he should start as a service advisor and, on six-month rotations, work in every segment of the business. He felt that his son-in-law should complete his indoctrination tour in the business office and spend a solid year to eighteen months of a three-year training program learning the ropes of business finance. I further asked how much he expected to pay his son-in-law. "I will pay him what he is worth in the various jobs he will perform. I know that it is probably less than he is making now, but he will be earning substantially more in four or five years. I can also make some cash gifts to my daughter to supplement their income during this period," he replied.
My response was that his plan sounded great, but I would bet one of Flora's fruitcakes that the son-in-law's assumptions of what he would be doing were much different. Although admittedly late, I suggested that he write out his thoughts, send them to me for refinement and I would coordinate the adoption of a Family Business Employment Policy corporate resolution with the company attorney. I advised that he keep talking with his son-in-law, but not finalize any agreements before giving him the document and asking for his agreement. He agreed and, with the attorney, we quickly put together a resolution.
As soon as the corporate resolution was available, my client forwarded it to his son-in-law with a note asking him to endorse an acknowledgment. Daughter immediately called back, having a "hissy fit." She accused her dad of having no respect for her or her husband. She said that they deserved better treatment. Naturally, my client referred his daughter to me; and she called trying to use the same line. My response was, "Save your fire power; lets all meet and work this situation out."
About a week later I met with the client, his daughter and her attorney-husband. As we all sat down, my client began trying to explain himself. I interrupted him and confessed that this was my idea, so I should be the one who explained it. I said that the program was not based upon disrespect. We respected both of them enough to make sure they were properly prepared for assuming a management leadership role. This was a tough business that was very different from the practice of law. Having a legal background would help the son-in-law be a better manager, but it would not make him a manager. Only the son-in-law could make himself a manager by learning the fundamentals of the business and earning the respect of those who, at some point in time, he will hope to lead.
The daughter, who was an aggressive young lady, kept trying to butt into my explanation, but I held her off until I finished this first explanation. Finally, getting her turn to talk, she responded with, "But our friends are all managers and executives." She was determined to continue with the fairness platform. I was in the process of explaining to her that their friends had chosen initially to go into management in lieu of law, when her husband jumped into the discussion. He remarked that he had substantial reservations about the automobile business as well as his ability to live up to the expectations of his father-in-law.
The daughter was taken aback with what her husband had said; however, not being one who was short on words for very long, she quickly responded by asking how she and her husband were going to live on the blue collar compensation. Her father responded by saying he could find ways to get them enough extra money to get by for a couple of years, however, as in any situation, achievement will require some level of sacrifice. I then added that, as the firstborn with two younger sisters, she should be a proponent of a restrictive Family Business Employment Policy. I asked her what she would think if her husband paid his dues and followed her dad as the dealer, only to have two other brothers-in-law come along and demand manager jobs. Not only would they put a financial and managerial strain on the business, but they would also provoke friction between sisters. If her husband skipped the steps, she would have no valid argument regarding her brothers-in-law sliding into the business. There was no further argument; evidently, that thought got her attention. She recognized the precarious example she could be setting, and we went on to work out the details of her husband's training program. That was five years ago. I suspect any day now I'll be hearing from dad, wanting me to begin developing retirement plans. The attorney son-in-law was just promoted to general manager. Over this five-year period, one of the other sons-in-law came into the business and dropped out after six months because he "did not like the long hours." To be sure, if that son-in-law had entered as a manager with 8:00 - 5:00 hours, he would have found a comfortable spot and would have ultimately become "dead wood" to the business.
Compensation of family members is a very important aspect of the FBEP. This is an important agreement when children and in-laws are entering the business because compensation is such a common cause of controversy. Anyone who has ever had a brother or sister knows without explanation that family environments are competitive. This competition can be very healthy; however, selfish emotions can convert healthy competition into petty back biting or, even worse, nasty struggles. A compensation agreement takes the politics out of how much family members are paid. Although a parent may enjoy the short-term thrill of giving a child a fat salary or a discretionary bonus to support their lifestyle, this short-term joy can turn into a long-term headache when the child or other family member questions whether or not the bonus was fair. The headache intensifies when siblings and/or cousins begin making petitions as to why they deserved a higher bonus than their brother or sister. Compensation programs and pay plans keep parents out of harm's way in this type of family fallout.