Recruiting & incentivising non-family executives

Successful family businesses sooner or later have to confront the issue of succession.The solutions are limited. In some circumstances the obvious successor comes from within the family and the business can be handed to the next generation.

Where there is no obvious successor from within the family the incumbent executives will need to consider selling the asset or bringing in non-family members to continue operating the business for the benefit of the family shareholders.

To recruit top quality executives the Incumbent owner/managers will need to offer a competitive remuneration and incentive package. A mature and prosperous business will be able to offer market rate salary with competitive benefits. However, it may well be reluctant to offer a potentially valuable share option package, which may be the key benefit needed to attract top quality executives.

Share option packages in family businesses are often shunned because:
(a) they dilute the family’s interest; and
(b) the shares in the family business are by their nature illiquid.

Forward planning allows a family business to create a share option scheme for its executives which can have a ready made and relatively liquid market For example, some or all the issued share capital can be listed on a secondary investment exchange such as OFEX. Alternatively, schemes can be created whereby the shares of the company or at least the option shares are subject to a periodical valuation process followed by an offer to sell back to the company or to existing family shareholders. Phantom share schemes can also be considered.

Option Schemes for larger family businesses can be used to give all staff a feeling of belonging as well as incentivising both them and the top executives. For further information, please contact:

Larry Nathan
Tel +44 (0)20 7440 7031
larry.nathan@mishcon.com