How family businesses can attract and motivate top talent

How family businesses can attract and motivate top talent

  • Alexis Pinchin, Director |

4 mins read

Getting the right talent in and invested in the business is critical to the success of any organisation. However, this also brings us to an interesting question – what do we need to do to ensure that we have the best people working with us and how do we retain our top talent?

Talent is the top concern for family businesses. The STEP 2019 Global Family Business Survey shows that 16 percent cite the availability of talent as their main worry, ahead of regulation, emerging technology or cybercrime. This doesn’t surprise us. In our long experience of working with family businesses, we’ve seen unique challenges they face in recruitment and retention.

Fortunately, there are many things family businesses can do to strengthen their proposition when seeking talent. 

Attending to myths about remuneration

One of the most common myths about family businesses is that they under-pay their employees.

This myth is most likely due to the preconception that, because very few offer equity, they can’t match the total remuneration offered by non-family businesses. This is then compounded by the assumption that family businesses provide less opportunities and promotions into senior level roles.

Understanding industry wide compensation for a role, and what candidates want, is key. In my experience, many family businesses are actually over-paying: either the salaries are over-inflated or the bonus schemes are too generous and lack incentives.

We recently worked with a family business to help them attain complete confidence in the salaries and annual bonuses they were offering their employees. They made adjustments based on our benchmarking and recommendations, including a cash-based long-term incentive plan. This meant they could have conversations with employees secure in the knowledge that they were starting from an equitable position.

More intelligent incentives

Another common challenge for family businesses is how to use remuneration to motivate. It’s widely recognised that performance targets can incentivise hard work and give employees a sense of sharing in the success of the company. But family businesses are confined by the belief that they can’t fill the equity gap. So how to put together a package that really motivates people?

One potential solution is to look at a cash alternative to shares. Targets can be created using all sorts of measures and metrics, including profit and strategic, or personal goals. When someone reaches a target, a cash pay-out is triggered – normally a percentage of salary. Industry benchmarks can be used to arrive at an appropriate pay-out.

A second possibility that we often discuss with our clients is a phantom plan. It is an equity plan mirrored in a cash alternative. The capital value of the company is calculated at various points, and cash is paid in lieu of share appreciation. In a nutshell, a phantom plan works like a share plan, but without the complications of offering equity.

Boosting ambition with shares

A third option is to offer equity by creating an internal share market. This works well for those who want employees to be shareholders but don’t want to go down the route of a listing or full sale.

A family business explored this option and achieved excellent results. Senior and mid-ranked employees are allowed to buy shares in the group. Every six months, the shares are independently valued, with employees gaining from any increase in the company value. If they wish, they can trade shares with each other, and an employee benefit trust was set up to buy shares from any employee who might need to sell, creating a market.

This kind of internal share market is a viable alternative to a full listing and has been proven to motivate employees who hold shares.

Of course, some family companies may want to consider a listing or a sale, in which case an event-linked equity plan can be put together. The prospect of a future pay-out gives people a real boost; they know their hard work will be recognised when the event occurs, and that they’ll share in the value alongside the family owners.

Other means of motivation

Focusing on innovative monetary reward schemes can help differentiate a business, but it’s important to remember that there are other ways to motivate people. The power of learning and development cannot be underestimated. In our experience, providing clear career paths is crucial in not only ensuring that you retain your key people but also that they perform at a higher standard.

We recently worked on a review for a family business. The reason for this was a score from a recent employee survey that showed that there was a sense of inequity and unfairness which, when investigated, was due to a lack of transparency on career and pay progression. We worked with them to create a new grading structure with associated pay levels, which has really helped to provide transparency and clarity to people on their career paths. 

A tailored solution to the Employee Value Proposition (EVP)

Finding the best combination of employee solutions and offerings within an EVP and reward strategy is rarely straightforward. Often, the focus is on senior executives and monetary rewards, when talent needs to be identified and nurtured from top to bottom. Generation X, Y and Z are, of course, your future leaders.

Our approach is to build a long-term relationship with clients so that we can step in when help is needed. For example, a share incentive scheme will work well in good times. But what happens when the economy gets a little unstable? No one wants to risk losing key staff when times get tough. We can help with re-negotiating packages so that they continue to incentivise employees in a harsher environment.

We can also help family businesses capitalise on their real strength, their culture. It’s important to highlight how desirable family enterprises are to talented people. Values of trust, pride, legacy and community, lasting across generations, really matter to candidates.

Our record shows that we work shoulder-to-shoulder with family businesses through thick and thin, year after year. Remuneration in particular, is an area where we can deliver real value. With the right market knowledge and incentive packages, family businesses can attract and motivate the best talent in their industry. 

“One of the most common myths about family businesses is that they under-pay.”

“We talk with leaders about how they can reward fairly and negotiate pay armed with rock-solid market information.”

“Values of trust, pride, legacy and community, lasting across generations, really matter to candidates.”