Do you have a question about a small-business topic? Let our resident expert Chris Griffiths take a run at it. E-mail your questions to firstname.lastname@example.org. Confidentiality ensured.
The question: Many years ago, I hired my sister in my startup. As the business grew, so did her salary, but her skills have lagged the company’s needs. The business has outgrown her, she is overpaid and underqualified, and she no longer fits with the culture or the future. What should I do?
The answer: One of my first rules of business is to never hire family. I’ve seen it work well, don’t get me wrong, but when it doesn’t, it is often bad, bad, bad. Starting a small business is risky enough, why would you drag family members into your complicated world? You need them for moral support, not easy access to labour. Businesses may come and go but your family is forever. Keep them separate if you can.
This is of no help to you, of course, because you are already in the thick of it. Your problem is common and it doesn’t just apply to family. It can come up any time you try to fit a specific person into your business as opposed to searching for the right person for a specific need. Here, in black and white print, the difference seems subtle, but the impact on a business is significant.
When you hired your sister, I bet you didn’t post the job, have her apply and then vet her along with the other potential candidates – then choose the individual who was most likely to have a positive impact on the business. No, you more than likely forced the company to accept her based on an emotional decision instead of a business one.
You justified it based on one endearing quality for which no one else could compete effectively: trust. That made her a strong choice for which you could fill a position and have your insecurities covered.
As I wrote a couple of years back, if you are going to hire family or friends, keep the business side of it business. So, what do you do now?
You have recognized that your company never needed a relative, it needed the best person for the job. As your business has grown, your sister’s weaknesses in this position have become more evident, and now you need to do something about it or risk showing the rest of your staff that relations mean more than performance. You’ve traded your trust issues for guilt issues.
The next thing you need to do is what you should have done in the beginning – treat your sister like an employee and prepare to dismiss her and replace her with a more qualified candidate.
If she is overpaid and underqualified, you are no doubt worried about how she will maintain her lifestyle on a go-forward basis. Legally, you owe her a notice period or severance in lieu of notice, or both. While the labour laws in your province probably suggest a severance of a matter of weeks, general practice in Canada is to be much more generous. Since you own the company, any severance ultimately comes out of your own pocket, so you can cushion the blow with an above-average severance package.
For executive positions I would be prepared to offer a minimum of six months or up to a month a year for the number of years she has worked for you. You may even be so kind as to top it up with some retraining funds or an outplacement adviser or career coach who can help with her transition.
It sounds like she has done nothing wrong. It is just that this decision is long overdue. You have a chance to get your business what it needs and do right by your sister. She is probably feeling out of place now that the business has grown and she may be relieved to find out you are giving her the tools she needs to move on with her head held high.
You owe it to the business and to your family to manage this honestly and fairly so you can look back on the outcome without regret. Good luck.
Chris Griffiths is the Toronto-based director of fine tune consulting, a boutique management consulting practice. Over the past 20 years, he has started or acquired and exited seven businesses.
Follow us on Twitter: