Some businesses are family owned, but not run by members of the family. So, how do you make such non-family key employees act like they are owners? Give them skin in the game.
The most common form of “skin” in the game is company stock. Done right, this approach can be a win-win for all parties involved in Overland Park or elsewhere. That said, great caution is due, as discussed in a recent WealthManagement.com article titled “The Tyranny of Minority Shareholders.”
Structuring your family business for the future is not an easy task. While each company and family is different, making a key employee a part owner certainly can give them added incentive to run things when the family cannot or will not.
Note: Providing incentives for a key employee to "earn" more skin in the game can be an essential first step in the coordination of your business succession plan with your personal estate plan.
On the downside, you can create tension between the family owners and the key employee turned minority shareholder. For example, conflicts can arise should the majority owners (i.e., the family members) take actions in their own self-interests without considering the concerns of the minority owners (i.e., non-family members). In some cases, a minority shareholder can be protected by state and federal laws, as in the Empire State Building IPO case featured in the original article.
Even if you do not own an international landmark like the Empire State Building (remember "King Kong"?), there are many ways you, your family, your non-family executives, and, yes, your business, can find a happy medium. However, it takes time and qualified counsel to structure things correctly.
Remember: When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
Reference: WealthManagement.com (June 20, 2013) “The Tyranny of Minority Shareholders”