How Should You Pay ‘the Family’ in Your Business?
Family-owned businesses are unique in so many ways, while typically providing a legacy for generations to come. But they are also a mash-up of family dynamics and business issues, where the dysfunction and culture traits of the family can play out throughout the org chart of the business.
Holding Your Family to Account
Great organizations are great because they hold their employees accountable, something that can get muddied in family-owned businesses. Healthy companies use accountability from the top of the org chart to the bottom to hold leaders and workers responsible for actions and decisions made. When family elders, who are also typically the senior leaders in their family-owned business, do not hold their whole team equally accountable regardless of their last name, the negative ramifications for the company are many. For instance, performance management is predicated on the notion that people will be held accountable for meeting goals and making tasks happen. When leaders in the family-owned business will not hold their family accountable, what is the point of going through the performance management exercise?
Along with accountability comes trust. Trust and truthfulness are foundational elements of great cultures. Trust increases when family members are committed to truth-telling regardless of family lineage. If team members feel safe in telling the truth to family leaders, even if they think it isn’t something leaders want to hear, the business begins to operate better and with more sustained growth. Building this open exchange increases trust exponentially.
Why Is Compensation in Family-Owned Businesses so Different?
It is often the case that family member senior leaders in family-owned businesses have a hard time looking at the roles and responsibilities of the family members as they would non-family members, which makes paying them all more difficult.
If the daughter of the owner/president is performing the tasks of the company CFO, she should be paid as a CFO would be in any other company, based upon the industry, company location, company size, and her training and experience. If the owner/president wants to pay her or others additional amounts based upon their family affiliation, that is a separate issue from the work they perform in the company. There are other ways, other than through annual cash compensation, to pass on family wealth.
In its extreme, I have seen more than one instance where second and third-generation family members have key roles in an organization, and they are all paid the same amount. CEO, CFO, Director of Human Resources, Vice President of Marketing, Warehouse Manager, Manufacturing Manager, all paid the same because they are family members. Very different jobs with vastly different tasks and responsibilities. The resentment and anger that builds up in situations like this are exponential and thoroughly damaging to the company.
In all organizations, family-owned or not, pay for the job, not the family ties of the person in the job!
Let Me Help Your Family ‘Compensation’ Plan
Don’t wait until your business bubbles over with resentment and family fighting. The holidays are right around the corner and there is no better time to get your family-business compensation strategy in place. Get a compensation check-up or find out how you can equitably compensate family members and keep all your employees motivated to grow your business.