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Sunday, November 09, 2008

Family Owned Business

My company is a family owned manufacturing business. The owner's son manages the place while the owner has moved to another state. The son hires a friend of his and promises to pay him more than the set amount that entry level employees make. This friend had no prior experience to warrant being paid more, nor has the company ever paid any employee in this position more than another in this same position (as a starting pay). In the past, this boss has also hired all 5 of his children and paid them more than anyone else. Is this legal? Is it ethical? I'm stuck in the HR/ payroll position and feel like I should advise the owner, which of course will bring about problems with this boss, who is not my direct boss. What to do?

I am not a lawyer. I do not offer legal advice. I do not pretend to offer legal advice. I don't even watch Law and Order any more, so I'm not even up on the nuances of NY criminal law. Not that this would matter in this situation.

Not being friends with the boss is not a protected class. This, in my way of thinking, means that you don't have any claim of discrimination if the boss pays his BFF more than he is paying you, or rather the other entry level workers. You may see it as stupid, he may see it as being generous to an old friend.

Hiring your children is not illegal either. Nor would paying them more than other employees be anything less than expected. Is it stupid? Probably. (Although, I wonder if it would be illegal to pay them extreme amounts of money in an attempt to transfer assets to them without IRS problems. Hmmmm, too bad I'm not an accountant either.)

As you are probably already aware, salary information like this gets around very fast although no one is willing to admit that they said the boss's friend/child is getting more money than everyone else. It ruins morale and if in addition to being overpaid, the boss's friends and children aren't stellar performers, it's going to increase turnover.

So, this is why it matters to you. It doesn't matter how much the boss pays someone or who he hires. (Does not matter. Does not matter. Repeat that.) It matters how the workplace is affected.

Should you go to the owner? Only if you regularly report to the owner. If not, then it's a phone call out of the blue to say that sonny-boy is a screw up. They either already know or they are in denial, so what good will it do? You don't even report to the boss, let alone his parents.

You should voice your concerns--to your boss. Your concerns are with employee morale, pay consistency and productivity. If the first and the last are not a concern--frequently people in family owned businesses expect the boss's children/friends to be given special privileges and while they may grumble about it, it doesn't really have an effect on performance--then don't bother. Now, if clueless friend gets promoted out of an entry level job without proper qualifications, then as an HR person it is your responsibility to lay out the problems with this approach.

If you have a regular working relationship with Sonny you may mention your concerns about morale to him. He may think he's a great guy who is helping people while you see him destroying the business. Now, if the owner happens to give you a call and ask what is going on, you can express your concerns, but don't call them up.


Anonymous said...

Ya know, it could be worse. Some years back a friend of mine was hired by a family-owned business. The boss/owner loved his work ethic and productivity. My friend was promoted over two of the boss's sons.

Two days later he came in and found his office locked. The boss was out of town. A sign on the door directed him to "See Mary." Mary was the bosses wife.

She explained that NO ONE was going to have a higher position in the company than her sons and handed him a generous severance check along with a box containing the personal items from his desk.

Anonymous said... the family owned business, so much fun. Every HR person has to figure out how to handle this at some point in their career if they work for a private business. My personal preference is to diplomatically explain our recruiting process and that we will be sure to include the candidate in the process. I also explain that putting the person through our regular process will head off the perception of favoritism, and it is never good to come into a job where people already have a negative impression of you, simply because of the hiring process.

However, I will admit that I have had the luxury of working for owners who have the courtesy to just bring me a resume and strongly suggest we hire them. I've never been "told" to hire.

Anonymous said...

Remember that "the process" is primarily there to say 'no'. The same thing happens in publicly held companies and government.

The family owned business and entrepreneurs just simply tend to be sloppy about how they go about it.

Emily E. said...

Ahhh, the joys of small family owned businesses.

If someone wants to lose money by hiring their friends and family members and paying them more than they are worth, then that's their right. It's their money that they stand to lose, so let em. The son is going to have to answer to his father for any damage done to the company's bottom line.

I worked in accounting for a small business where the owner would expense his alcohol purchases (we're talking $300+ a week). The company soon went out of business... These things have a way of working themselves out.

As for the legal aspect- it is completely legal to hire friends and family members and you can pay them whatever you want.

Catbert is my hero said...

If the absentee owner cared about the problems of hiring family members, he probably would not have given the business to his son to run.

Running to Daddy will only insure that the writer gets fired. If you can't stand it, time to leave!

Anonymous said...

There are IRS regulations about pay to family members, but it generally has to be egregious. Paying a relative 10% more than a non-relative probably isn't enough - paying a relative 5x more than a non-relative probably is.

You probably know the IRS has no mercy. You may not know they pay 10% to informers.

Sourabh said...

This is a catch 22 situation.. As an HR professional it becomes hard to break the process and hire a Bosses or owners Friend/ family member who doesnt have the requisite skill set. But then end of the day HR manager also has a family to run and his job is on the mercy of his BOss/ Owner.

I would advise not to advise either the owner or his son on this matter and move on with the job. If possibel try and find employment in an organization which has strong systems, processes and value system in place.

Anonymous said...

cheers. This can be used as a ready reckoner anytime.

I also follow a blog on Importance of Human Resources:


HR Underling said...
This comment has been removed by the author.
Anonymous said...

This is the norm for privately run organizations. People like to take care of their friends and family.

Anonymous said...

"the owner would expense his alcohol purchases"

Is that legal?

El Comodoro said...
This comment has been removed by the author.
Anonymous said...

"the owner would expense his alcohol purchases"

Is that legal?
In the terms represented, no way. Now, if it were booze purchased over a client dinner or as a team happy hour, fine. But putting your personal liquor store runs (or anything else that's not strictly related to the business) on the company card is a huge no-no, esp if you're crazy enough to try to deduct it...

I'm still trying to deconstruct how much booze $300 a week would buy, and if I could survive ONE such week!

Anonymous said...

There is a huge issue that no one else has brought up. If the boss is inconsistent with pay, he could end up with a huge law suit on his hands. For example, say he hires his friend and offers a starting salary of $40,000. His friend happens to be a white male. He then hires another candidate at the regular entry level salary of $30,000, and she happens to be a black female. This could easily be seen as discrimination.

I guess this is his problem, but as an HR professional, there has to be some sort of process in place in terms of compensation.

Anonymous said...

Excellent guess on the tax implications. Some more comments from me here.

Anonymous said...

Can HR hire and supervise their own child?