11/01/2007
My dad has always tried to treat my brother and me equally. In our family business, I have worked full time for more than a decade. I am head of sales and help bring in millions of dollars in revenue. My brother has been with the firm less than five years, is vice president of human resources and does not bring in any revenue directly. Yet we are paid equally, have equal equity and will share the company when our father dies. This doesn’t seem fair. Shouldn’t our compensation reflect our roles?
The short answer to your question is, yes. Most parents say they love all their children equally, so they want to treat them equally.
Unfortunately, siblings usually feel they should be treated according to their individual contribution levels. Experience shows that while parents are alive to control the compensation issue, it rarely surfaces. But when the parents are no longer around, the pent-up anger and frustration finally come into the picture.
Compensation in a family business can prove challenging for all generations, as well as for nonfamily employees. Many business owners engage in selective merit pay, ignoring the concept that individuals should be paid at market rates and adjusted for performance—proving once again that blood is thicker than water.
Family-member employees who make a commitment and meet or exceed performance expectations should be rewarded, not penalized or held back by others in the family who are less capable, less motivated and, in some cases, less productive. All employees should receive compensation based on the role they play in the business, not based on who they are, their gender, their last name or their birth order.
Equity in the business is another story. It is reasonable for parents to transfer or bequeath ownership in the family business on an equal basis to children who are actively involved.
David J. Ciambella, The Rawls Group, Orlando, Fla.
Parents are determined to treat their children equally, especially in terms of sharing their financial resources. Compensation of family members in the family-owned business is easily one of the top 10 hot-button issues. The fair market value of your position, and your brother’s role, can be evaluated on an objective basis. The results may not be 100 percent accurate, but they provide rough justice. Almost everyone thinks they are underpaid.
Egregious disparities arise from time to time. In some cases,
Dad insists that his daughter work part time in order to spend more time at home
raising his grandchildren. Meanwhile, he will continue to pay full compensation.
This invariably creates dissension within the family, as well as with nonfamily
members who begrudge the obvious disparities. In this example, Dad needs to face
the fact that he is making a gift—regardless of what he wants to call it—for
business and IRS-reporting purposes. He needs to assist the stay-at-home
daughter in another way.
Fortunately, you seem resigned to accept equal ownership of the
company with your brother, regardless of length of service and value of
employment contributions. This is correct on your part; the distribution of
ownership equity is wholly independent of compensation issues.
A candid discussion with Dad is appropriate. Do not try to
argue your greater worth to the company when compared to your brother. That is
not your responsibility. Request an independent analysis of compensation
policies. Integrate them into the greater strategic plan of successorship that
is currently underway in your family business.
Joe M. Goodman, Adams and Reese, Nashville
It is common in family businesses
for parents to strain to treat their offspring equally. The general goal that
family firms strive toward is for offspring working in the business to receive
equal shares of equity in the firm, but that each should be paid according to
his or her economic value to the firm. Determining this usually involves
professional assistance and/or survey information from outside the family.
To remain competitive, a family business must be run as a
business. In most industries and companies, top sales positions usually pay more
than HR positions. That normally occurs through a variable component of the
compensation for sales staff based on sales goals and their achievement.
Bonuses at the end of the year for reaching company goals may
be split equally among the family in family firms, but it is more appropriate to
divvy up the total bonus with an equal percentage increase of each person’s
compensation.
Tom Juenemann, Institute for Family-Owned Business, Portland,
Maine