No wonder compensation poses some of the most sensitive and complex problems family businesses face. Much of the problem occurs when the differing roles played by family members in the business are not recognized or respected. To overcome these problems, first recognize how flows of funds in family businesses relate to the roles family members play. As family members, money flows as gifts, allowances or bequests. Employees receive salaries or wages, benefits and perks.
Owners receive funds through dividends or by selling appreciated shares.
With clear, open and informed understanding of these matters, your family will experience far fewer conflicts over money. The next step is to develop and share a new philosophy of family business compensation. Issues to be considered include how compensation should be related to performance and to what extent family membership should affect pay. Other family businesses, however, choose to pay family members more equally. Once a new philosophy has been developed, be sure to communicate it clearly to all employees, owners and family members.