Compensation Strategies for
Family Owned Businesses
Is it time for your company to create or update
compensation programs that are customized
to your business?
Family businesses cover a wide range of industries and
can be small or among the world’s largest companies.
These companies face unique challenges that arise from the complex interaction of business and family relationships
— and the desire to avoid conflict within the family.
If your company has been struggling to find a way to appropriately compensate family members and other employees, the POE Group can help.
Questions Asked by Family Businesses?
Do we have clear compensation and equity arrangements?
How do I structure pay to compete against public companies?
What's the best way to create short and long-term incentive programs?
How do we compensate family members who don't actually do work?
Providing Compensation Design and Structure
for Your Family-Controlled Business
Successful family owned companies use compensation to attract, retain, and motivate their employees.
What challenges are the members of your family business facing?
We have assisted many family-owned business with their compensation programs. We understand that family businesses can face challenges related to compensation, including a lack of documentation or the absence of an overall compensation strategy.
Many times, the compensation plans have not been updated to keep up with the business’s growth, which eventually creates issues as the business becomes larger and more complex and hires more employees.
Given the broad spectrum of types and sizes of family businesses, there is not a one-size-fits-all approach to compensation programs at family-owned businesses – but working with an experienced compensation consultant will help provide insight, direction, and structure that is customized to your company's unique requirements.
How our family business compensation consultants can help:
We have worked with a variety of family-owned businesses to help them create or update compensation programs to fit their unique circumstances.
The two main factors challenges for effective compensation within a family-owned business are:
1. Addressing the very personal issue of compensation for business partners who are also family members. Discussing individual compensation is never easy, but may be more difficult for family businesses where the partners’ relationships are shaped by their family history as well as their business roles. Often, these issues come to light when business responsibilities change, such as a new generation joining the business.
2. The belief that family members should not be paid an externally competitive amount based on their role in the business because they are family members and receive dividends from the business based on their ownership stakes.
How to effectively address pay at family owned businesses?
1. Involve family stakeholders throughout the engagement.
All family members who have a stake in the company should be involved in the process. Family stakeholder participation helps ensure that everyone understands the underlying issues early in the process, develops trust along the way, and has the opportunity to learn about and help develop the company’s approach to compensation.
2. Use market data to anchor the compensation plan.
We strongly recommend that family members working in the business be paid commensurate to the value of their position in the external market.
It is common practice for family businesses to either overpay employees who are part of the family or undercompensate them for the work that they provide. Neither scenario is ideal, as both will exacerbate issues with family members and non-family employees alike.
3. Introduce pay-for-performance incentives.
A well-designed pay-for-performance program aligns pay with the achievement of the business’s operational and financial goals and measures employees objectively.
Objective measurement is especially important at family-run businesses, as it is critical that everyone feels like the incentive plan payouts are grounded in fairness and linked to actual performance.
4. Add some formality to the work relationship.
Developing plan documents, employment agreements, and pay review processes lessens the perception that pay decisions may not be fair.
Achieving collective agreement on a compensation plan for a family business is part compensation consulting and part psychology. Following the tips above can help lead to a positive outcome.
At the end of the day, family relationships are important and don’t need to be put at risk by disagreements regarding pay. We can help navigate the process of creating fair and equitable compensation programs.
Why it is important to hire compensation consultants to create compensation programs for a family-owned business?
Hiring an outside consultant to assist with creating compensation programs provides the framework to ensure that owners, as well as other employees, are paid fairly and competitively, and allows your family business to focus on its core business activities.
An external consultant can provide an impartial perspective on the value of jobs in the company, whether they are held by family or non- family employees.
In addition, formally documenting compensation arrangements is especially useful as the business grows, or family members transition in or out of the company.
Do You Have Questions About Your Business? Talk to Joe.
We know that compensation can be complex,
but we're here to help. Let's talk today with
a Free 30-Minute Consultation.
Call 813-546-8628 to speak directly with Joe Kager, Managing Consultant of the POE Group.
Joe Kager, CCP
POE Group Managing Consultant
We work with companies, large and small, across all industries and throughout the United States.
Further reading on Pay Equity Audits
POE Group Blog: Compensation in Family Owned Businesses: A Touchy Subject
POE Group Blog: Think Public in Designing Private Company Pay Programs
Chief Executive Magazine: How to Win the War for Executive Talent at a Family Controlled Company
Harvard Business Review: Managing the Trickiest Parts of a Family Business