Setting pay for family without causing conflict

By Wayne Cooper
Setting family compensation without causing conflict

Many family businesses have run into big problems when compensating family members -- and, in some cases, the issue has destroyed businesses and families. Family firms that have successfully avoided problems share several best practices:

1. They use external independent compensation data to benchmark their family members’ compensation packages against the practices of comparable companies in terms of size, industry, growth, profitability and geographic market.

2. They have explicit equity and pay philosophies that are clearly communicated to all family shareholders and employees.

3. In companies that do not award equity to family members based on their role and active involvement in the business, other compensation mechanisms (e.g., salaries, bonuses, benefits and perks) are used to compensate family employees competitively. Benchmarking to ensure fairness and objectivity is important.

4. Many large family enterprises have family councils that elect representatives to serve on the company’s board of directors. The family council representative serves as the voice of family shareholders who are not active in the business.

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