The Non-family Members of a Family Business

 

The Non-family Members of a Family Business

Delaware Business Review
by Nancy F. Blumberg, CPA, CFP
Simon Master & Sidlow, P.A.

Key non-family personnel are just as important to successfully operate a family business as family members are to the business. Attracting and retaining these non-family members will help the family firm grow and prosper.

There are a number of creative ways to keep those key employees happy without jeopardizing the family’s control of the business. To determine the most rewarding benefit to the key employee, first the owners need to be aware of the non-family manager’s expectations and concerns.

It’s not unusual for a key non-family employee to expect sick leave, disability, retirement and medical benefits.This employee will expect to be comparably compensated to others on his level in the industry.

Concerns that need to be addressed are: if the employee remains healthy, what will the employee have at the end of this tenure?Also, what happens if the company goes through a succession during the employee’s tenure – what part will the employee play?

After the owners understand the non-family employees’ expectations and concerns, a creative, attractive benefit plan can be offered.Various options can be offered depending on what the owners want to provide and whom they wish to reward.

Some options include:

  1. Pre-tax Wealth Accumulation Plans – These plans allow the executive to defer taxes on any amount of income contributed to the plan and also on the appreciation in the value of money.Often these plans are used in conjunction with a supplemental retirement plan.
  2. Supplemental Executive Retirement Plan (SERP) -These plans are developed for those employees who earn more than $150,000. They can provide financial and job security for key employees by providing salary continuation to enhance post-retirement income.

Some equity options include:

  1. Restricted Stock – Basically this stock is the same as all other stock except that it must be offered back to the company when the employee leaves or before it can be sold.
  2. Phantom Stock Plan – No stock is issued.It is a deferredcompensation plan that provides the recipient with a share of the future appreciation of the company.Because no actual stock has changed hands, there is no taxable event when this stock is issued.

With any of the options, family business ownersmust consider the impact it will have on the business and family.Also, owners must take into account the key executive’s aspirations and select the best alternatives that meet both the employee’s and family’s needs.