A company is only as good as its employees. This maxim resonates in our globalized world. Increased cost consciousness, market volatility, international assignments, legal requirements, complex taxes and the need to retain top performers present a daunting host of challenges to family businesses.

You need to balance your company’s interests with your employees’ expectations. Maintaining the balance between efficient cost management and a high level of employee motivation is a challenge for organizations. You will therefore need to consider a suitable compensation mix as well as administrative costs and tax issues for your company and your employees.

Bringing outsiders into the family circle

Attracting and retaining “non-family” talent

Motivating employees through incentives

Although most family-run enterprises want to keep management of their business within the family, they sometimes need competent and experienced managers from the wider business community. Such individuals bring new skills, insights and the ability to drive positive change in the organizations they join.

Increasing the diversity of your management may strengthen your company’s ability to cope with a wide range of situations. The formidable combination of your family (with its historical knowledge of the business, long-term contacts and customer loyalty), in combination with the unbiased fresh thinking of a proven industry expert, can be a powerful growth-driver for your business.

You may wish to consider separating family ownership and management, and invite non-family executives and non-executives to the board. This could mean re-evaluating your business model and operational structure, and hiring people from outside the family to fill skills gaps.

However, there is a widespread belief that top jobs in family businesses should be reserved for family members — regardless of their competence or qualifications. Therefore, there are limited opportunities for “outsiders” to reach senior positions or influence the direction of business in organizations that think in this way. This belief is usually unfounded. It does however result in family businesses facing difficulties in attracting and retaining non-family senior management.

Top performers may be attracted by the long-term opportunity of helping to build organizations and contribute to their decision-making process, since for many of them, stability and empowerment are factors that are more motivating than financial gain.

To achieve and maintain success, you need to identify and reward rising “stars” and top performers — and retain them in your company.

The employees of many family businesses are less attracted by annual compensation packages and bonuses than those working in non-family businesses. Therefore, the challenge for the former is to devise reward structures that motivate managers and executives outside the family. To do this successfully, you should offer such employees competitive benefit plans and incentives tied to key performance-related benchmarks.

With no shareholders to restrict actions, family businesses are in an ideal position to motivate their employees by offering a mix of financial, physical and emotional incentives. Sharing the profits of the company, formally and informally, creates long-lasting relationships.

Alternative tax-efficient incentives include shadow stock options, performance management systems (including target agreement systems, review of performance or evaluation of role, annual bonus systems linked to key performance indicators and deferred compensation. As you grow, you may need to revisit your incentive structure and ensure that you retain key staff by letting them share in your success.

Managing and retaining talent

Our advice on personnel-related issues is designed to help you ensure that your employees meet their potential.

Senior managers should be accountable for building client relationships and developing the business, so they need to be allowed the flexibility achieving this effectively. It is important for your managers to feel free to be innovative and take responsibility for their actions.

It is also important that you hire the right people with the right skills. Managers’ roles need to be defined precisely, so that they fully understand their responsibilities and your expectations.

A family business’s brand can be a significant attraction for potential employees. Ultimately, your “employee brand” depends on the reputation your company builds for being fair and providing its employees desirable compensation packages.

To attract the best talent, create innovative recruitment campaigns and compensation packages. And to keep your employees happy, it is important to develop or access comprehensive and flexible human resource (HR) processes. As you grow, you may be able to build a global HR function, based on your leading practices from your activities, and link your human capital strategy to your business objectives and vision.

As markets globalize, the number of employees on time-limited international assignments is growing. Therefore, you need to keep reviewing your global mobility strategies.

For many years, EY has worked with companies that either send their employees on international assignments or have expatriates on their rolls. In such cases, international know-how is required to help employees with their taxation-related requirements. We advise employees on the tax- and social security-related consequences that arise in home and host countries. If appropriate or legally required, we prepare the required documentation to help to ensure that employees continue to be covered by the social security systems in their home countries. In cases where employees have a dual residential status, are engaged in professional activities in several countries or earn income from foreign sources, we weigh up their alternatives and optimize their advantages.

Managing managers

Building your employee brand

How EY can help you attract, manage and motivate talent

Mobilizing your workforce

Our extensive experience with family and entrepreneurial businesses means we do not only develop theoretical approaches, but we can also help you to put these into practice. We have a tried and tested manner of approaching your personnel challenges and can work with you to achieve the following:

We tackle the growing complexity of attracting and retaining personnel in a personalized manner, for example, by undertaking the following initiatives:

► Evaluate personnel-related costs and tax-efficient benefits — from those incurred on company cars to selection of the right pension scheme

► Promote flexibility by developing compensation models based on performance and outsourcing of non-core areas to enable concentration of effort on key projects

► Create incentives, based on value-oriented compensation and employee participation models

► Put in place expansion and global mobility programs

► Ensure companies’ compliance with tax- and social insurance-related requirements, e.g., checking the clauses of their employment contracts and their compliance with international regulations

1. Determine your requirements

2. Assess your current business strategy, and identify problems to fix and opportunities for improvement

3. Develop tailor-made approaches, models and policies

4. Select and implement appropriate measures.

About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

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© 2015 Ernst & Young LLP. Published in India. All Rights Reserved.

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This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young LLP nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

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