Most farm businesses create policy only when something goes wrong. An argument occurs, or somebody has their feelings hurt. The farm principals reluctantly, but emotionally charged, agree to meet and come up with a consensus on how the policy issue should be defined.
But wouldn’t it be better to have those policies outlined in writing for all to understand and abide by first – to avoid issues in the first place?
Dick Wittman, who has written and lectured on the topic as a farm financial consultant and rancher from Idaho, offers a host of ideas and worksheets on how to develop a farm’s policies in his newly revised, “Building An Effective Farm Management System.”
If you’re like many senior farm managers, you know why it’s important to develop policy before they are needed. This is particularly important on issues like compensation, family employment and family business investment policy.
“Many a farm business feud could have been avoided if a more clearly defined and documented policy was in place on how to handle inter-entity transitions and compensation,” says Wittman.
A written policy allows family and non-family employees to manage expectations and prepare family members for how things work in the business. There may be numerous policy areas in your business that have not been clearly understood, documented, or consistently administered. Some policy areas need to be re-thought to improve teamwork, financial efficiency and personnel administration.
“Putting these policies in writing, getting them peer reviewed by advisors, and periodically updating them is a must,” says Wittman.
You and your farm management team should take inventory of your current policies and determine other policies that warrant written documentation. Develop written policy statements to cover the business position on each issue.
Make policies readily available to all affected by publishing an Employee Handbook, in print, or on cloud-based files, or other media. Have these policies reviewed by professionals for compliance with state and federal regulatory requirements.
- What benefits are provided by the farm business, to whom, at what value? This could include housing, vehicles, retirement plans, medical coverage – and more. Who gets a company vehicle? Spell it out in the policy.
- Business Benefit Continuation/Buyout Arrangements - What is your policy concerning continuation of benefits that are currently provided by the business in the event of death, disability, or separation of a key business principal? Do you have a written Buyout Arrangement? If yes, is it covered by insurance?
- Salaries, Wages and Bonuses: Describe how you are currently being compensated (amount, basis for determining pay such as hours, days worked, or salary, bonuses, etc.) Who determines the pay scale and how often is it revised? How does your business address the division of its earnings that should accrue to the Owners versus management/labor? How are part-time help and non-management labor compensated? Are family members such as spouses or children compensated for work performed for the business?
- How is your performance of assigned duties evaluated and by whom? Is evaluated performance a factor in determining your compensation level?
- Workdays, hours, holidays, vacation time, sick time – spell out your current practices. What’s the time off policy for outside activities like volunteering in farm organizations?
- Does your family employment policy define the process that will govern how family descendants and/or their spouses can enter and exit from employment in your farm business? This policy should give family members clear expectations on how and when they will be considered for employment. It should include education and experience requirements, compensation, nepotism guidelines, and an outline of the job application process, among other things.
Here’s an example of a written policy on farm accommodations:
On-Farm Housing - The business owns or (rents) and furnishes housing on farm premises to select employees without charge. These employees are expected to accept housing as a condition of employment due to the need for these employees to be on the premises 24 hours a day for husbandry, security and general farm and ranch requirements.
Off-Farm Housing - Homes off of the farm premises cannot be furnished to employees as a non-taxable condition of employment. Employees who own or rent their own housing will have the nature of their housing arrangement taken into consideration in structuring farm compensation packages. Individuals owning or renting off-farm housing will be responsible for maintenance and utilities.
These are just a few examples of the many policies your business should have in writing. It’s not an easy task, but once you have these in writing it will make your job as manager much easier.
Building An Effective Farm Management System is a toolkit for farm businesses to implement proven strategies to become a professionally managed farm business. To order the new 2021 edition of the guidebook, go to this link.