Compensation Strategies in a Family Business

May 21, 2010 by Frank Goley, Business Consultant

A Family Business can be tricky when determining compensation for the family while ensuring it is fair across the board for the company as a whole. Compensation and profit sharing can be difficult issues as some family members believe they contribute to the overall success of the business more than others in the family.  Here are some helpful tips when considering compensation levels:

v  Compensation should be based on job performance, experience, contribution and skills, not family position.

v  Benefits are useful financial incentives and rewards, but it is very important family benefits conform to those given to non-family employees.

v  Stock Plans, Deferred Profit-Sharing Plans, Pension Plans and Stock Purchase Programs can be very effective in placating unhappy family members.  These type of Plans also do not hamper cash-flows significantly, so profitability is maintained, yet has the synergistic effect of attracting, holding and pulling family members together.

v  Often Family Members are given a Managerial title and role but be careful not to show favoritism.  If a family member does not have the qualifications to be a manager, then for the sake of the business and employee relations, the family member should be given a position which matches his/ her experience level.

v  There should be a double standard when analyzing a family member employee and non-family member employee.  The family member should be held at a higher standard and be required to work up the ranks of the Company.  This way the family member does not take the position for granted, sets a good example and is highly qualified for management when that time comes.  While gaining experience with another outside Company is recommended and beneficial for family members, they should enter the family business on a level which gives them a firm understanding of the entire Company and how it works.  Once the family member has cross-trained in the Company’s various departments, gaining invaluable insight into Company operations, an appropriate position and title can be assigned and rewarded.

Resource:  For detailed analysis and strategies relating to Small Business Compensation Planning, please refer to my article:  Compensation Planning for Start-Up Ventures and Growth Stage Companies.

Posted in Business Management.

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