In a prior blog, I outlined the three circle model. Today, I will describe this model in the context of family employment. Many a family business has become fiscally challenged as the number of family members relying on compensation from the business grew (in successive generations) and the expectation – entitlement for compensation, regardless of contribution, becamse the rule just because that family member was part of the family. The fiscal trouble arose from an undefined business practice which did not clearly set out and communicate its family employment policy.

Circle 1 – family, one does have an obligation to take care of one’s family however not necessarily to the detriment of the business. Best practice, a fair wage for the level and contribution of work performed. I must distinguish between employing family as a line employee, which generally would not be fiscally burdensome vs. employing family in a management role. For management roles, family can be considered as long as that family member meets the job description’s requirements

Circle 2 – business. Do what is best for the business and it’s long term strategy. This may result in not hiring all family members at all times. but if adhered to, then the business will continue into the long term.

Circle 3 – ownership. Distinguish between dividends (compensation to owners) vs salary (payment for personal effort in the business). Both should be “fair”, especially when you have some owners that are active in the business and others that are not.

As you can see, this employment area for family members can be fraught with challenges because of the overlap of the three circles: family-ownership-business. Best practice to attend to this is have clear guidelines for employment and communicate these guidelines, which should include expectations, to the family members.

Learn, think, apply!