Overlapping roles in family businesses – like father and CEO – are always tricky to manage. But when dads (or moms) allow the family want rather than the business need to guide compensation levels, they create a non-sustainable process that often hamstrings the next generation’s independence and objectivity.

• When next gens are dependent on a pay rate that is not hooked to their value in the business, how is the family employee able to make clear, unbiased, business-focused decisions?
• How do they develop, implement or support an existing job family and pay-grade system for non-family employees that are based on fair market value when their compensation is not?
• How do they rationalize their pay to non-operating family owners, especially siblings?
• If other family employees join the business, how is their compensation determined? Value? Or need?

To address this unsustainable approach, the next generation can lead the challenging work of unwinding the family-driven, need-based “structure” by creating a rational, professional and objective compensation approach. The shift in behaviours means addressing tough issues like quantifying the different levels of value family employees bring to the business, personal financial responsibility, lifestyle expectations and employee performance.

Here is how you can begin the shift;

1. Communicate to the family and particularly, to family employees, that the compensation approach will be changing.
2. Develop a compensation philosophy for your family business – a summary of the values and principles that guide decisions on compensation and benefits.
3. Get an objective assessment of family employees’ current compensation and benefits packages relative to the market. You may also include non-family employees in this process.
4. Adapt the market-based findings to your current situation.

Continue to remind stakeholders of the process and where your business is within that process.

• Let the family business members know that the process is hard now but this pain is being endured to provide the family and the business a stronger, long-term foundation.
• Be sure to emphasize that no abrupt changes will happen. All adjustments in pay and benefits will be done over time and with lots of notice.

This transition will produce emotional reactions and stress in the short run. If your goal is a sustainable family business that has the highest probability for family harmony and business success, this short-run pain is essential to avoiding a more divisive future.

( All factual and statistical information presented in this blog has been obtained from an extract of an article from the Family Business Consulting Group based in Chicago). Follow us on our Facebook page and Family Business Office website at www.familybusiness.org.mt

At the Family Business Office we can offer you assistance in dealing with family business succession planning issues through incentives supporting advisory and mediation services. Contact us today on familybusinessact@gov.mt.