In order for a family business to survive and prosper beyond the first or second generation of family ownership, it must have a pipeline for developing talented leaders. Finding the best talent may require looking inside and outside of the family. However, it is often difficult for family business owners to be objective about hiring—and firing—family members.

One way for a family business to establish a fair process and procedure for hiring (and, in the event it becomes necessary, disciplining or terminating) family members is to adopt and consistently apply a family employment policy. Successful involvement of multiple family members is most likely to occur when clear employment criteria are in place.

While the terms of each family employment policy will differ from business to business, we have found that effective family employment policies address the following topics in one form or another:

  • Employment with the company must be earned—it is not a birthright.
  • As a condition to employment, the family member must have employment experience outside of the company (typically two to five years of outside experience) and must have received at least one promotion with another employer. If the family member has not been a valued employee elsewhere, the family member may not be happy or productive in the family business.
  • For a family member to be employed, the company must have a legitimate job opening. The company should not create a position for the family member unless the growth or needs of the business justifies a new position.
  • The family member should have the skills and qualifications that would be required of any non-family member candidate for the position.
  • The family member should be required to complete the company’s standard interview and screening process for new employees.
  • Once hired, the family member should receive a market salary and be treated the same as any other comparable non-family employee with regard to benefits, training, continuing education, performance reviews, disciplinary action and termination.
  • If possible, the family member should report to a non-family member.

A family employment policy certainly will not eliminate all of issues that arise when multiple family members are employed in a family business. In our experience, though, a family employment policy helps to establish the credibility of family member employees and makes it more likely that family member employees will be productive and successful in the family business.