3 Tips for Designing the Compensation Structure for Your Family Business

3 tips for designing family business compensation structureCompensation in any business can be a delicate topic, but add family members to the mix and you may as well pop a bag of popcorn, sit back, and get ready for the show! So what is a family business to do?

Certainly, we can agree that doing nothing—while always a tempting option—is never the best idea. Think about it; with each passing generation, the issues become exponentially more complicated. What was once an easy discussion with your sibling or your parent  becomes a much more complex situation over time, particularly as multiple generations are added to the conversation. 

Here are three tips to keep in mind as you design (or redesign) the compensation structure for your family business.

1. Think long-term.

Often, a certain pay structure that has been put in place for, say, G1 or G2 (first or second generation family members) presents some real difficulties to unwind. However, that doesn’t mean things can’t change for the future. Setting up policies with a longer-term vision will lead to less problems and distractions down the road.

2. Keep the economics of the business in mind. 

Think about what level of compensation the business can reasonably handle. Too much can damage the fundamentals of the business. The last thing you want to do is kill the “golden goose.”

3. Recognize there are many ways to compensate. 

Compensation can include not just salary, but also benefits and perks. It’s usually recommended to keep salaries in line with fair market value. You can easily determine fair market value through a compensation survey and then you’ll have an accurate amount incorporated into your budget in the event a family member decides to leave. Other benefits, such as automobile and cell phone allowances or life insurance policies, are typically allocated based on ownership and are paid out accordingly.

With some thoughtful planning, you can set your family business on the path for generations of success, while being able to enjoy a peaceful Thanksgiving dinner—at least when it comes to compensation conversations.

 

Steven E. Staugaitis, Kreischer MillerSteven E. Staugaitis is a director with Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email.

 

 

Do you have experience navigating the compensation discussion in your family business? What did you learn? Share in the comments.

 

 

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