Family vs. business considarations in compensation

ANE oF rHE Iuosr challenging poli\-lcy areas for families in business together is compensation. As with many issues, approaches tend to be divided into two camps. Opinions and emotions can run quite high on both sides.

The "Market Camp" says that a market-based approach to compensation is the only acceptable and professional alternative. Family members should be paid what anyone else in their positions would be paid, and perquisites for family members are to be avoided. According to this view, any other practice is uncompetitive, is unsustainable, and jeopardizes the success of the business.

The "Family CamP" insists that special considerations in family compensation are legitimate and appropriate. The family may decide to PaY family members approximately the same salaries no matter what their positions, in order to preserve family harmony. Alternatively, family members may be paid a premium wage or receive special perquisites such as paid memberships to a country club, extra vacation time, or the use of company cars or other resources. Special rewards recognize the extra burden of ownership borne by family members. who often put in manY

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Wise and experienced families find it impossible to embrace one of these two approaches to the exclusion ofthe other. They seek to operate in a waY that balances the wisdom found in both approaches.

For example, market-based compensation approaches contribute to stronger, less confused family relationships. At the same time, monetary recognition and reward for the long hours invested by family members in support of their business can foster their support for a data-based compensation philosophy in the business.

Let's provide a hypothetical but realistic example: Joseph Construction Company is entering its third generation of family ownership and management. Several years ago, when the siblings entered the business, it embraced a market-based compensa- tion approach. The human resources staff regularly adjusts family and nonfamily compensation based on regional and national salary surveYS. Performance appraisals are conducted regularly and fbrm the basis of salary decisions at all levels.

The family sees this Professional approue h to compensillion as it cornerstone of the company's continued growth and success. as well as its ability to attract and rctain top nonfamily talent.

However, over the Years, the siblings have come to sec the value of incorporating sevcral family-based elements into their total compensation approach. For example, perfilrmancc reviews are standard practice throughout the companY and Provide an objective basis for salary increases at all levels. However, familY salarY increases are not tied to annual perfbrmance rcviews, because the siblings have never really received performance appraisals.

Also, family member PaY is sli-uhtly above market rates fbr their jobs' This is in recognition of the extra time and eflbrt put forth bY familY members. They are all activc in the community and spend manY evenings and weekends representing the family and business at charitable events.

They have also taken on the role ol organizing family meetings and preparing the next gcneration for their responsibilities, much of which takcs place outside usual business hours. These activities are critical in creating conditions for sustainablc success. Family and non-familY executives know about this "family pay premrum" and recognize its valuc.

Although the comPanY has a vacation and time-otf policy that is strictly enforced for non-family employees, the siblings' vacations and timc off are not monitorcd or tracked. While none of the siblings abuse this privilege, none of thcm limit themselves to the company standard of two weeks of vacation per year. In fact. when their children are youn-q. family members frequently leave work in order tcr attend their children's events and tend to their needs-a privilege that is not extended to non-family employees.

Finally, all four siblings attend an annual family business seminar (often in exotic, luxury locations) paid f'or by the business, and this time off is not countcd as part of their vacation trme.

However, all these familY-based compensation ele ntents take place alongside a prclfessional, rigorous, market-based salary and bonus systcm throughout the company. This hyptlthetical family illustrates a realistic and positive approach to considering both family and market-based ctlnsiderations in total compensation o1'fnmily men'rbers.

Evcry successful farnily business finds its own unique compensatlon approach. As you see k to establish your approach, be aware of the importancc of balancing these two lmportant forces. Which aPProach do You prcf-er?

Are you cmphasizin,s one approach to the exclusion of the othcr'l

If so. perhaps this article has off'ered you sollc ideas that can help you strikc the most productive balance fbr your unique situation.

Ant M. S<lttrnnn is u principul oJ the F-orrril,v Btrsirtt',rs Cortsrtltittg Group' Moriatru, Ca.; (1J00) 551-0(33. Reuclt her tfi s c lt urrtutt@ e.liur r i I tl:tus nc s s.c ont.

Re ltrinted x'ith permissittn .fnm The Funtih' Brusint,,r,s Adt,isor, u topyrighted publicariort oJ Funtilt l'.nterpt'isc Publisltrr's. No portitttt tt.f this ttrticle nttr hc reltrodrtu'l YitJlout P?rmi\sion ttl f'untilt F,illr:rprise Ptblishers.

Bosed in Annopolis, MD, Fletcher Wood Solutionst-' is the lcrgest mcnu{ccturer ot defect-free, oppeoronce grode rodicto pine products in New Zeolond. Distributing our cleor boords, mouldings, LIFESPAN"' trected wood, ond lumber to the North Americcn morket through our proven ond completely integrcted supply chcin, Fletcher Wood Solutions' mointoins direct occess to one of the lorgest FSC certifiedo pine plontotion forests in the world

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By Anne Feterson, Federated Insurance Companies