Compensation Philosophy Plays Key Role in Family Businesses

Some of my favorite clients are family businesses.  These settings can make for some interesting twists and turns in reward plan development.  One area that can present particular pay challenges is setting the base salary levels of family members who work actively in the business.

I take the position that it is critical to establish and stick to a particular philosophy here.  The examples presented below - by no means an exhaustive list - represent a couple of alternatives that I have found to work well in this particular setting .

• Classic market-based salary ranges.  In the same manner that all jobs would be addressed in a classic market-based pay structure, the formal roles and responsibilities of active family members are defined and benchmarked, with base salary opportunities established accordingly.  With this philosophy, family members' base earning opportunities are set in line with what their skills and responsibilities will earn in the external market for talent.  Undeniably rooted in outside reality.  This may seem obvious, but in my experience this approach - probably the most straightforward and defendable - is often overlooked.
• One team, one salary range.  In situations where family members may have different specialties and roles, but function - largely or entirely - as a governing team, it may make sense to have a shared salary range for the group.  This serves to emphasize the importance of their shared interests over their individual contributions and assignments.  Practically speaking, we will typically set this range one of two ways - by finding the average of the market salaries for all of the different member roles, or by simply selecting a representative job to use in salary range development.   (This philosophy has application beyond family businesses; I have seen this particular approach used for the executive teams of private non-closely held, public sector and non-profit organizations.)

The appropriate philosophy is identified and adhered to in establishing base pay opportunities.  If adding a family "premium" is desired, then set and apply the premium consistently.  Ownership differences shouldn't need to factor into salary setting; presumably these are handled through distributions and the like.  To the extent that other special needs and circumstances must be addressed via base salary, my preference is to identify and define them separately. 

Pay is a sensitive and emotional subject in any setting; with family members working together under the same "roof", it can potentially be even more so.  A clear and transparent compensation philosophy can be a solid step in support of equity and harmony.