So what are the criteria for determining reasonable salaries for family members in a family business? Ask yourself the following questions:
- Does the salary reflect the role the person is playing? A family member coming in right out of college may know a lot about computers and may even come into the family business as the MIS manager. "But that doesn't mean he or she should be paid a salary commensurate with a seasoned MIS manager," says Wood. Nor does it mean that the inexperienced MIS manager should make the same salary as his or her brothers or sisters who have been working in the family business for a number of years.
- How does the salary stack up to the salaries for comparable positions in similar organizations? In your assessment, include the type of industry you're in, the size of your company in terms of revenue, the geographical location of your company as opposed to others, and the other companies' general compensation philosophy.
- How well are other employees and managers in your company compensated? When you think compensation, consider base salary, short- and long-term incentives, bonuses, benefits and perks. Compensation for everyone should reflect the company's performance as well as individual contributions and should not be adjusted to accommodate an individual family member's financial needs.
- How well is your business doing? What can you afford to pay? This is an important business question that can't be overlooked.
It's often difficult for the heads of family businesses to take the emotion out of determining salaries when it comes to relatives. That's one area where outside input comes in handy. Consultants or an outside board of advisors can be useful when evaluating family members' salaries and total compensation packages. The objectivity they bring to bear helps maintain positive family relationships.
Enchanted Forest, (503) 371-4242, http://www.enchantedforest.com
Tofias, Fleishman, Shapiro & Co., (617) 761-0600, http://www.tfsandco.com