Family Business (CONT’D FROM PAGE 16)
stock. Executives who lack equity also lack the ability to participate financially in the upside. That can lead them to jump ship, taking their skills to competitors. “In my experience, frustrations by senior level employ- ees are less about cash compensation and more about the lack of potential to share equity,” said Harms. “Family businesses must develop some alternative means to in- centivize non-family executives.” What’s the solution? Just like publicly traded compa- nies, privately-held corporations have shares of stock that not only represent ownership control, but also facilitate the allocation of financial rewards through share appreciation and dividends. Harms said that it’s wise to set in place a financial vehicle to channel financial rewards to non-family executives through equity-like compensation, while allow- ing family members to retain operational control. A number of vehicles are available to accomplish this task. One of the most common is a profit-sharing plan, but there are others such as classified and phantom stock. Additionally, an Employee Stock Ownership Plan (ESOP) can channel appropriate compensation to executive and non-executive employees alike. While delving into the de- tails of such vehicles is beyond the scope of this article, family businesses can seek further information from their attorneys and accountants. Family businesses that follow the guidelines outlined above will ensure their entire teams maintain good morale
ed to family members? “Your company might have lots of exciting investment opportunities,” said Harms. “But if shareholders press for large dividend payments or share redemptions, the drain on funds can crowd out otherwise attractive projects. That can be very frustrating—especially for non-family CEOs and CFOs.” Never mind that smart investment of profits will ulti- mately benefit family members. Those not intimately in- volved in daily operations are more likely to want imme- diate returns. Such conflict can become especially intense as the years go by and the family tree becomes populated with second, third, and even fourth generation members. “The number of family members can grow substantially, and everybody wants a slice of the pie,” noted Harms. How can this situation be avoided? Nothing so com- plicated has a one-size-fits-all solution, but ongoing edu- cation can help. “It’s important to make sure family share- holders understand that businesses often grow by heavily re-investing earnings,” said Harms. “A dollar distributed or used for redemptions is a dollar that’s not available to make the business succeed.” Share Your Success Equitable pay and promotions are one thing. But who benefits financially when the business becomes more valuable as a result of employee performance? Too often, the answer is only the family members who own shares of
CONTINUED ON PAGE 20
We’ve got our customers covered… …with our fiberglass backed, boltless, full double-wide blankets and an extensive inventory of corrugated parts needed by virtually every box plant in the country. The innovator of the original fiberglass-backed knuckle locking anvil cover, Stafford is the industry’s go-to source for everything corrugated. TM
www.go2stafford.com 800-282-5787 IS THE MANUFACTURER OF STAFFORD ANVIL COVERS ®
18
www.boardconvertingnews.com
February 26, 2024
Made with FlippingBook - Share PDF online