Compensation For Family Members
In A Family Business
“That’s not fair, daddy always gave him/her more,” are cries that permeate a family business. The early quest for being treated fairly between siblings is at the heart of how to compensate. Whether you like it or not, the amount of time and resources given by parents and grandparents to siblings, they keep score and the dynamics lasts throughout the relationship. If you stand a chance of putting together a successful compensation system for the family members in the business, this must be addressed.
In order to have a measure of success the following should be developed:
Family Employment Policy
When a family member or sibling is considering entering the family business, have the Family Council (if you don’t have one, develop one) create a family employment policy. The family employment policy should specify part or of all of the following:
The family’s philosophy about family employment
What the family expects of family employees (behavioral and performance)
What age a family member must reach prior to applying for a position
What formal education a family member must obtain prior to applying
What knowledge the family member has in specific areas; leadership, technical, financial
What level of outside work experience prior for joining the business
The process used to hire a family member
How they will be evaluated, compensated, promoted and fired, if necessary
How the next generation leader will be chosen and by whom
Once your employment policy is done, you can create the family compensation policy. This should have a parallel perspective and should address key issues very clearly.
Family Compensation Policy
Compensation should be based on merit
Family employees are expected to live with their financial means and not encumber themselves with excessive debt or rely on special disbursements for their living expenses
Compensation levels will be determined by fair market value analysis, just as with nonfamily employees
Extra compensation, when deemed fair and reasonable by the Board, and not harmful to the ongoing performance of the company, will be provided through ownership channels.
Compensating family members in a family business can be challenging. Questions about fixed and variable pay, benefits and incentives, stock options and perks, retirement and fair market value can be overwhelming when mixed with the emotions of the family relationships. Compensation for family members in the family business is complex and brings up old issues. It must be dealt with strategically, handled carefully and fairly.
