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Fair Pay in the Family Business

As we have discussed in previous articles, a family business is often very different to your more ‘corporate’ organisations.

Family businesses can be extremely successful. In fact, they account for almost 50% of private sector employment, providing millions of jobs for the UK economy. Family members are usually more heavily invested in the company’s future and having a legacy to pass down to future generations.

For many, it often starts as a lifestyle choice, and the members involved can have varied reasons for being part of the enterprise.

However, if not managed carefully, things can quickly go wrong in a family business. Relationships, emotions, generational and succession issues can all get in the way of the bigger picture if they are not managed properly.

One of the biggest sources of contention is often money.

Why pay can be a source of contention in a family business

There are many reasons why pay can become an issue in a family business, with extremes at both ends of the scale.

These can include:

·      Expecting family members to not take any money at all, for the ‘good of the business’

·      Paying too much to keep them happy or for emotional and personal reasons – for example, because it’s your child and they have a family to support, or because you’re trying to encourage them into the business

·      Using inflated salaries to transfer tax deductible wealth to members of the family

·      Upsetting non-family employees who may feel they are not valued as much as a family member with less experience but more perks

How to remunerate fairly in a family business

Sorting pay and salaries in a family business can be very delicate. On the one hand, you can’t take advantage of people just because it’s for the family firm. But on the other, it’s no good to throw inflated sums of money at people who may not possess the necessary skills. And somewhere in the middle is the fact that people are involved in a family business for a reason and they do need to be able to see the benefits of that.

Pay Basic Salary

You could pay a basic salary – which reflects the going market rate for a particular skillset and job role – and have a separate performance-related bonus scheme which pays out when defined targets and milestones are achieved. This could be based on personal performance, company performance, or a mixture of the two.

Set up an executive committee

If you’re the owner of the business, you could also consider setting up an executive committee for family members which offers compensation in return, or give out shares which pay regular dividends, to help top up basic salaries.

Whatever you choose, it’s important to ensure your other employees feel fairly treated and part of the team, as any resentment over pay can be harmful to your business, and you could risk losing non-family employees who are just as vital to your operation.

Have defined policies, procedures and descriptions

You can avoid potential pay problems by having a defined set of employment policies, role descriptions and bonus/performance-related pay scheme details, for both family and non-family members. If everyone knows the remuneration package from the outset and how they will be compensated for their work, hopefully all involved will know what is expected of them and what they will get in return.

If you would like more help on achieving fair pay policies in your family business, get in touch with your Action Coach today.