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Cutting Back

When you have to cut a family member's salary

When my brother and I started the business over 20 years ago, our two cousins, who are like brothers to us, joined us as producers," says the owner of a New York City insurance brokerage. "They had a salary, commission and benefits package that was substantially higher than others in the office."

But the insurance business changed dramatically in the past 10 years, and the principals began considering cutting their cousins' compensation packages, which were way above industry standards. "We procrastinated," says one owner, "because we knew this would be very difficult. But if we didn't make the move, we'd lose considerable money."

Eliminating the cousins' salary and cutting their commissions was indeed difficult. "They were aware times were hard, but they thought the work they were doing made up for their salaries. They felt angry and betrayed. In one fell swoop, we went from being a close-knit family to one that was distant and cold," the entrepreneur recalls ruefully.

Unusual? Not at all. When business is bad and a company has to cut back on expense accounts, bonuses, salaries, commissions or benefits, often the one most affected emotionally are the family members who are out of the information loop. They, even more than other employees, feel they should have inside information on the state of the business.

These people go through a grieving process that's perfectly normal, says Bernard Kliska, a psychologist and family business consultant in Chicago. "You can expect them to be upset, go through periods of denial ("I can't believe this is happening"), anger ("I'm going to quit"), bargaining ("I'll stay if we can restructure the cuts"), depression, and finally acceptance," says Kliska. These stages take almost a year to work through, he adds, assuming a person doesn't get stuck in any one stage.

It's hard to convince someone whose compensation you've just cut that the decision is nothing personal. In fact, cautions Jane Hilburt-Davis, family business and management consultant and executive director of The Cambridge Center for Creative Enterprise in Massachusetts, the family business owner has to be certain that this is indeed about money and not a way of getting back at the relative for an unresolved issue in their past.

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This article was originally published in the February 1997 print edition of Entrepreneur with the headline: Cutting Back.

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