What is a fair compensation structure for family-owned businesses?

Business Leader Post, August 23, 2012

Thomas D. Davidow, Ed.D.

Fairness is in the eyes of the beholder. What works in way one family make not work in another family.

I have had cases where the overriding value in the family and consequently in the business is peace at all costs. Examining compensation and attaching compensation packages to titles and responsibilities was the third rail in the family. When it was approached the threat to family harmony was so severe that the family business members voted to keep the system as it had always been where all family members in the business received the same salary and bonus structure.

In a different case family harmony was threatened by family members who received the same compensation package where there were clearly different levels of responsibility and authority. The family brought in a compensation consultant who attached industry wide recommendations for salaries according to their positions in the company with family members sharing equally in bonuses and or distributions attached to company performance.

One must be very careful applying traditional business models/solutions to family businesses. The primary focus is to listen carefully to the values of the family which are the key to family harmony. Absent that guideline, the fix can be more costly than the problem.