06/ 01/ 2007
by Jeffrey Moses
As anyone in a family business knows, the family dynamic of a business offers many benefits--and a few concerns. Two of the chief concerns that founding members of a family business often have are the adequate compensation and promotion of younger family members.
Compensation
When it's anticipated that younger family members will eventually take over the business--or at least have long careers in the business--it's important to work out realistic, market-equitable salaries, benefits and retirement packages. Too often, younger family members are overworked and underpaid for their level of ability and experience, while non-family employees receive the going market rate for their services.
Founders of a family business should review the salary and benefits of each younger family member individually and adjust salaries as the person matures and takes on more responsibility. Youngsters may start in the family business by working after school and weekends for minimal pay. But once they reach significant part-time or even full-time status with responsibilities equal to those of non-family employees, salaries should be adjusted so that younger family members feel valuable--and see viable, long-term opportunity at the company.
When a family business consists of two, three or more younger members (siblings or cousins), each of these individuals will look closely at what the others earn. Even so, it's important not to automatically pay everyone the same. Salaries and benefits of family members should be based on actual contribution. A simple explanation of salary levels to all concerned will clear the air and provide incentive for those making less due to younger age, lower level of involvement, part-time work, etc.
Many family-based small businesses rationalize lower salaries to family members with the thinking “they'll end up owning the business in the long run.” This may true, but it's difficult to engender a feeling of worth and loyalty without offering a fair salary commensurate with that of other employees in the industry.
Promotion
The promotion of younger family members should be based on the same general principles outlined above: determination of actual contribution, level of involvement, desired career goals within the company, experience and ability.
When a number of younger family members work in the business, it's important to evaluate promotions and salary increases individually--and inform all family members of the reasons behind such decisions. Some degree of jealousy and feelings of inequality may be inevitable, but putting everything out on the table for all to see is the best way to minimize potential conflict and disharmony.
The issue of succession to ownership of the family business can be complex. Because of the long-term importance of succession and the potential for disharmony within the family, special attention should be given to this decision. Not only is the day-to-day control of operations involved. Also in the mix are distribution of ownership and/or company stock, distribution of retirements accounts, responsibility for debt, etc. When these issues begin to present problems, the assistance of outside firms experienced in family-business succession should be brought in.
The issues of compensation and promotion of younger family members should be approached in an organized, consistent way. Ideally, guidelines should be established and presented to each family member when starting work. This eliminates surprises. Just as important is ongoing communication between all family members in the company.
