Keys to Hiring a Non-Family CEO
In private, family-owned companies, often there comes a time to have a non-family member be the CEO. This can be a challenging decision for the company and, more importantly, the family to make. The big questions are:
1. Will there be room at the top for future generations of the family to run the business?
2. Does this new CEO fully appreciate the uniqueness of our family business?
3. How do we structure the new CEO’s compensation plan without diluting ownership?
4. Many more specific to the family business!
Hiring a CEO Outside of the Family
The best approach to these and the plethora of questions around a non-family CEO is to get help. This ideally will come from your Board of Advisors/Directors who can bridge that gap because they know what is unique about the family business but as an outsider. These trusted individuals can not only help the family select the best person to run the company but more importantly the best person that will work with the family to help achieve the objectives the family has with the business.
Compensation and ownership is always a very hot topic and my recommendation is to put in place a three step compensation plan.
A) Salary & Benefits- this must be market competitive to attract the best candidate possible.
B) Annual bonus program- this should be based around the key business metrics of the business like growth of revenue, profits, operational efficiencies, etc. This will change annually and set by the compensation committee of the Board.
C) Long Term incentive plan- this is often a Stock Appreciation Rights (SARs) program. Have the plan based upon Book value growth of the business along with growth of EBITDA because without profits we have no business. Have a vesting period of 3-5 years along with a withdrawal schedule.
This is always an interesting time for the family business in transition but the risks can be greatly reduced by following these steps.