How Can Family-Owned Businesses Incentivize Non-family Executives?

Contributed by Bill Morris

Before any incentive program is put in place, I think it’s important to determine which one of the “eight-motivational” categories the executive is in. Motivational DNA or–Drives/Needs/Awards- formula will then help direct the proper incentive. For example, the AWARDS- for some might be “internal”—needing a “pat on the back”—or for others- “external”—needing a bigger paycheck.

To help companies make the right decision we provide a simple 21 question test (no right/wrong answers). The results will put you into one of eight categories: The Director, The Visionary, The Chief, The Champion, The Supporter, The Relater, The Refiner, or The Explorer.  The results show what motivates you and what de-motivates you, but more importantly, it will show you what motivates and de-motivates those who report to you. Incentives can be structured accordingly.

In a family owned business the family usually likes to keep control via equity. This does not mean that the right individuals who run the company properly cannot own equity as well. In fact, just because your DNA makes you a family equity holder, it doesn’t mean you are the right person to advance the organization. The difficult part means you have to address the “D” word—“DILUTION”. If my family were running a $50 million business, and I as the CEO thought I had my brothers (MOE—LARRY and –CURLY) in positions that were over their heads—I certainly would go out and find the right individuals to advance my company. It’s the best thing for shareholders as well as family members.

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In my world of M&A, equity groups who might one day approach with an “offer to buy” look very closely at the management (right after EBITDA). The expression we use is “DON’T BET ON THE HORSE—BET ON THE JOCKEY.” It’s about the people who run the organization and more times than not Moe, Larry and Curly are not the right individuals to advance the ball.

 Bill Morris is a CEO and an Adjunct Professor at The Paul Merage School of Business (UCI)

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