Nailing down salary amounts for employees is no simple task for
any business owner--but for family business owners determining pay
for relatives, it can be especially difficult.
"That's because crafting an appropriate compensation
package [for] a relative is an art. Emotion gets mixed into the
numbers," says Linda Wood, senior consultant in the human
resources branch of public accounting firm Tofias, Fleishman,
Shapiro & Co. in Cambridge, Massachusetts.
At different times and stages, business owners may use any of
the following rationales when deciding on salaries for
relatives:
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*Family members shouldn't get paid what they would if
they had the same job in another company because they own or will
own a significant portion of this business and that should be
considered part of their compensation.
Compensation involves more than just salary, so there's some
validity to keeping base salaries low for family members who are
also owners when the business is involved in maneuvering a
turnaround. Down the road, if the turnaround is successful, these
owners will be compensated handsomely.
"You have to pay a certain amount to [nonfamily] employees
just to keep them, and you have to be competitive salarywise if you
want to attract top management talent from outside the
family," says Wood. "So when things are tight, the family
may have to take a cut."
Families should be leery about instituting a policy that keeps
family members underpaid forever, however. "Keeping family
members' salaries low when there is no reason for it will
eventually create problems," says Wood.
- It's my company, and if I want to pay my son, daughter
or cousins more than they would get if they went elsewhere,
that's my business. Anyway, they work harder than anyone else,
and I want them to hang around to perpetuate the business.
"Any business owner who thinks he or she can keep the
salaries of family members a secret from other employees is
dreaming," says Wood. So if you're paying your family
member more than others in the same or similar positions, you'd
better be sure he or she is doing an outstanding job.
"People will understand when a family member gets paid more
than they do if the business is doing well and if the family member
is doing an effective job," says Wood. "Even more
important, [nonfamily] employees must feel they're being
compensated well and being appreciated for what they do."
Sometimes, too, you have to pay a family member more because his
or her talent is top-notch, and you need to lure the person back to
the family business from another company where he or she is being
well-compensated. That's what you'd have to do if you
wanted to attract any top executive.
- I pay all my children the same salary. They all make
significant contributions and play important roles in the success
of the business. Besides, I wouldn't want anyone to feel
slighted.
It doesn't make sense to pay everyone the same amount just
to keep the peace. Don't be fooled--equality doesn't ensure
peace. In fact, it might have the opposite effect. It might
engender resentment among those family members who are making the
largest contribution to the business' success.
This approach does make sense, however, when the family members
work well as a team and each person's contribution is essential
in making the entire operation run smoothly. For Roger Tofte, 68,
founder of Enchanted Forest, an amusement park in Turner, Oregon,
this arrangement works well. Three of his four children are in the
business and have their own areas of responsibility as managers.
Mary, 37, is the business manager. Ken, 40, is head of the
12-person maintenance crew, and he designs and makes the rides.
Susan, 42, is the creative director of the park, directing and
creating the music and making the costumes for all the plays.
"They're the only managers in the company," says
Tofte, "and their salaries are equal because they are all
indispensable."
Patricia Schiff Estess writes family business histories and
is the author of two books: Managing Alternative Work
Arrangements (Crisp Publishing) and Money Advice for Your
Successful Remarriage (Betterway Press).
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