Some family members have the skill and can-do attitude to propel a firm toward greater success; others have the power to drag it toward bankruptcy. Before hiring a son-in-law who's clamoring for an executive position or a sister who recently graduated from college, beware of these pitfalls.

  • Hiring relatives who aren't qualified. You wouldn't hire an engineer who struggles with simple algebra or a sales representative who lacks people skills, would you? Likewise, you shouldn't hire family members who lack basic qualifications for the jobs you're filling. Many families require sons and daughters who are recent graduates to work a few years for another company before taking a position in the family business. They reason that working for someone else often provides a healthy dose of reality. The family name carries no weight at another firm, so the graduate learns how to survive on his or her own merits. Such a practice also introduces the graduate to another way of doing business and a different company culture, both of which may benefit the family firm in the long run.
  • Paying too much or too little to family members. Some business owners see family members as cheap labor; others compensate relatives well beyond industry standards. Both practices foster resentment. If your son is required to work long hours without adequate compensation, he may decide to quit or feel trapped. The daughter who is too highly paid for her skills and experience will often misunderstand the value of her contribution, while other employees resent the boss's favoritism. To ensure equal treatment, some firms establish a trainee program in which newly hired employees must complete a probationary period during which they're paid a lower wage. The goal should be to treat all employees fairly and in accordance with written personnel policies, whether or not they're family members.
  • Failing to hold relatives accountable. If your uncle isn't meeting the requirements of the job, his supervisor should provide appropriate direction. After that, if his performance doesn't improve, your uncle's employment with your firm may need to be terminated. In other words, your relative should be treated like any other employee.

That's another reason to proceed with caution. As much as possible, you want to ensure that the folks you hire are qualified and a good fit for your business — regardless of their relationship to you.

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