According to the U.S. Census Bureau, family-owned companies make up almost 90% of U.S. businesses and represent between 54% and 57% of U.S. employment – they are the backbone of our nation’s economy.

People tend to trust family companies more than other similar businesses – and there are few greater advantages to any business than trust.

But family-owned businesses present special difficulties, too, both for employees and management, and these can lead to conflicts which are bad for both the business and the family itself.

Often, these difficulties center around irregularities concerning family compensation – and this can be the case whether the business employs only family members, or both family and non-family members.

Compensation Irregularities:

Compensation irregularities can arise in different forms:

• Family members may be paid more than non-family employees performing the same work.
• Family members may be paid according to their family position, rather than their contributions to the business. This family position may be based on generational differences, on the perceived need (by the family business owner) of one family member over another, or for other reasons.
• Compensation may be based on assumptions which are not discussed within the family or the business, creating misunderstandings.

No matter the form, compensation irregularities within a business are bad for everyone – and can be costly in money and more. They can create:

An Unhappy Team

Whatever the particular cause, irregularities in a business’ compensation program do not make for a harmonious work environment, nor for happy employees.

• Non-family employees, if they are doing their work well and adding value to the business, are more likely to move on to another position if they feel they not being adequately compensated for the same work as a family member.
• Family-member employees who contribute less to the business may feel that, by virtue of their family status, they deserve the same pay as other family members who are, in fact, making vital contributions to the business’ growth and prosperity. If a family business does, in fact, assign all family members equal pay, then the ones who contribute more may feel undervalued, and decide to take their skills and acumen where they will be better appreciated – and more fairly compensated.

In short, compensation irregularities are more likely to lose the family business their best workers whether these workers are family members or not.

How can we avoid this?

First:

Communicate! And Make Compensation Fair

We mentioned undiscussed assumptions – don’t let assumptions slide into the equation, and do discuss!

Make clear to the entire work team, including family members who work within the business or plan to, that all employees, whether family members or not, performing the same function within the business will receive pay based on:

• Position, and
• Performance

Evaluation of performance, in turn, should include whether the employee takes initiative to increase their skills, acquire new credentials, and successfully seek out new business for the company.

Fairness will pay in the long run, as will ensuring that everyone, in the family or outside it, knows what is expected of them and is incentivized to do their best for the business. This, in turn, will lead to a more stable, and more profitable business – which is definitely in your family’s best interests!

One major aid in ensuring such fairness is:

Written Compensation Policies and Procedures

Nothing beats having written policies and procedures. There’s something innately impressive, even to family, about the printed word.

And when everyone knows what those policies and procedures are, there’s no confusion. This allows all your team to make a real contribution, knowing they have incentives to do so and will be rewarded for their own and the company’s success.

These people are the team you want and need.

The result:

Buy-In and Harmony!

When you have fair, written standards, and communicate them clearly and calmly, family and non-family employees understand how the ball bounces at your business.

No special treatment, and no unrealistic expectations.

Employees will work on an even footing, as a team, to ensure the family business’ continuing success – it’s a win for everyone.

RFG has assisted many closely-held businesses, including family-owned companies, in developing policies and procedures which help ensure their fairness, security, and continuing success.

If you are the owner of a family business, and want to ensure you have a prosperous concern to benefit your loved ones, please click here to email us directly – helping you is why we’re here.

Until next time –

Peace,

Eric