Developing compensation packages to attract non-family executives

By Wayne Cooper
Developing pay packages to attract non-family executives

Successful family companies work hard to develop competitive compensation packages to attract and retain talented non-family members. Here are some ideas to consider when developing your compensation philosophy and program:

1. Consider how your company’s performance would improve if you had top-quartile executives in various executive roles, vs. average performers. Family businesses should be willing to pay top-quartile compensation packages to recruit and retain stars in their key positions.

2. Create a pay philosophy that is consistent with your business strategy. You needn’t have the highest guaranteed payments (e.g., salary, benefits and perquisites) and the highest variable compensation (bonuses and/or long-term incentives), but companies that beat their competitors in one of these dimensions tend to have an advantage in recruiting and retaining a segment of employees (either the rise-averse or the risk-takers).

3. Benchmark your compensation packages to make sure they are competitive for new recruits as well as your existing employees. If your current employees feel they are undercompensated, hard feelings often fester, and by the time you find out about it, it’s too late to turn them around. Use external benchmarks, or see if your association or chamber of commerce conducts an executive compensation study for your industry or local market.

4. Many closely held family businesses do not grant equity to key executives, because they want to keep ownership within the family. But there are other ways to compete with companies that use equity incentives (e.g., long-term bonus programs or synthetic equity).