Keeping good nonfamily employees in a family business can be difficult. They might see limited opportunities for advancement if they assume all the management positions are reserved for your kids. They might feel the owners always prioritize the needs of family employees over those of nonfamily employees. Or they might simply feel uncomfortable as outsiders among a tight-knit group. Any of these situations could cause your best outside employees to leave in search of better opportunities.

If you own a family business, how can you make sure your nonfamily employees feel fulfilled, respected and included at work? We talked to five small business owners to find out how they do it.

1. Create a Fulfilling Work Environment 

The small size of many family businesses means knowing your employees well and wanting them to thrive. But without the resources of a large corporation, you have to get creative about how to help them feel that they’re getting something out of working for your company that they couldn’t get elsewhere.

“Owning a literal mom-and-pop business, we are generally unable to reward our employees with big salaries or impressive benefits packages,” says Carrie Viohl, co-owner of The Square, a family-owned Southern fine-dining restaurant in Moultrie, Georgia. “What we strive to do instead is to reward our employees with an enjoyable, happy, fulfilling work environment. We know that our coworkers could probably find higher-paying jobs elsewhere, but we work hard to make sure that they couldn’t find a friendlier, more encouraging place to work. We leave space for our employees to innovate, create and take leadership roles when they are ready.”

This means listening to suggestions from staff so they know their thoughts and creative ideas matter to the owners, Viohl explains. “So if a waiter has an idea for a more pleasing way to fold napkins, a cook comes up with a new sauce, a bartender experiments with creating new cocktails or a dishwasher innovates a more efficient way to stack the dishes, we listen. It’s a win-win-win, because the diners get ever better dining experiences, our staff knows that they are respected and are important members of our crew, and as owners, we have more heads in the game, constantly working to improve our business.”

2. Treat Employees Like People First

Whether an employee needs extended time off for major surgery or is having trouble paying the mortgage, it’s important to value your employees as people first and workers second. Empathize with personal situations that might affect their work performance, and they’ll be able and willing to work harder for you.

“I try and treat my employees like family and extend them the flexibility that entails,” says Erin Fry, owner of FancyFortuneCookies.com, a family business founded in 1988 that sells flavored, colored and giant fortune cookies that can be customized and personalized. “As a single mom, I have to leave work for a while every day to pick up my daughter from school, then we return to the bakery where she has her own playroom. That makes me sensitive to the needs of my own employees who are also parents and need occasional time off for child-related issues.”

“By being genuinely concerned about my team and treating them with kindness and understanding, they return the favor by working long hours when we need to meet a deadline or when inevitable challenges arise. We are simply there for each other,” Fry says.

3. Create a Sense of Ownership 

Nonfamily employees might feel left out since they don’t have the same ownership stake that family employees do. When you don’t want to share equity ownership with nonfamily workers but you do want to make them feel more included and give them an incentive to care about how well the business performs, there are ways to provide a lesser but still valuable type of investment.

“We recommend the use of phantom stock, where the employees receive cash bonuses that are based on the value of the business,” says Linda Wilkins, a name partner in the Dallas employee benefits firm Wilkins Finston Friedman Law Group. Wilkins counsels primarily privately held companies, including family-owned businesses, on strategies for recruiting and retaining the best employees and executives.

The company can decide how many shares of this pretend stock to award and choose when the shares will vest. This type of stock lets the employee benefit from the company’s increasing value as it grows.

“From the employee’s perspective, cash is king,” Wilkins says. “There is really no value to the employee to own stock in a privately held business, because it can’t be sold.” (Sometimes private shares can be sold, but it’s difficult. Learn more in How can I sell private company stock?)

The company decides how phantom stock’s value is determined, but it is usually based on a multiple of earnings. That means it’s based on the company’s performance, just like a public company’s stock is. But it doesn’t require the family to give ownership rights to an outsider when the family wants to retain complete control of the business.

In a restaurant like Viohl’s, for example, the husband and wife owners could issue 1,000 shares of phantom stock to their head cook. To give him an incentive to stay with the company, just like public companies often do, the shares wouldn’t vest for three years. At the end of three years, the chef would receive cash for the value of the 1,000 shares at that time.

4. Be Inclusive 

David Povlitz, founder and chairman of Fort Lauderdale–based Anago Cleaning Systems, started his commercial cleaning franchise company in 1989, and in recent years, his two children have taken over. What’s helped this family business thrive?

Treat employees as if they are part of your family, not just part of the business, Povlitz says. He makes it a point to walk around and say good morning to each person, celebrate birthdays and have company lunches. His business also pays for one class per semester for its employees, based on the idea that you would be willing to do that for your own family, he says. Of the 20 employees who have taken advantage of this policy over the years, three have earned bachelor’s degrees, four have earned Six Sigma certifications and 12 have taken an Excel course at the local community college.

“These courses have allowed our employees to be more comfortable in the work environment because they are equipped with the knowledge to be successful,” Povlitz says. He also makes sure to recognize and thank his employees for their specific contributions to the company, because everyone likes to be noticed and appreciated, he says, and because it helps employees feel like they are part of something that is growing right before their eyes.

5. Don’t Play Favorites

“It's not uncommon for some family members in a family business to show up late, not have great follow-through, and not be reliable or even very good at their jobs – in other words, to get away with things that any regular employee would be fired for,” says business coach Jennifer Martin, the owner of San Francisco–based Zest Business Consulting. “This can cause a rift and an ‘us against them’ feeling among the staff,” which isn’t good for business, she says.

Show your team respect by trying to see things from their point of view. “Instead of playing by the golden rule and doing unto them as you would have done to you, find out from them what respect means for them personally,” she says.

“If you want to keep good staff then let them know they are good. Get to know them and find out how they would like to be acknowledged and how they would like to be rewarded,” Martin says. And if you see the potential for growth in one of your employees, let them know that they’re on your short list for a new position, even if you don’t have a place or the budget right now.  

But if the only people in your business who will get the opportunity to take on more responsibility are family members, be forthright with the rest of your team. “People just want to know that you have considered them in any decision, even if it affects them adversely,” she says, so tell them you understand that they might not like what you are telling them, and show them consideration by explaining your reasoning.

The Bottom Line

Everyone involved in the family business, whether related to you or not, really just wants to be respected, appreciated, rewarded, given opportunities and treated like part of a community, Martin says. (For other good management ideas, see What Makes A Good Boss? and 5 Ways to Motivate Staff in a Small Business.)

By creating a fulfilling work environment, allowing flexible scheduling, creating a sense of ownership, being inclusive and avoiding playing favorites, you’ll minimize nonfamily employee turnover and foster an environment where everyone feels like an important part of the team, even if they aren’t your family.

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