The Challenge Of Rewarding Family Members

Employing family members can present a number of challenges for the family business owner; occasionally it forces families to consider the roles and responsibilities of their relatives. What is considered ‘fair’ is often the cause of anxiety and debate. Family business adviser Juliette Johnson explains more.

Within the family system, wealth is generally distributed on a needs basis, according to what is required and the number of children, or on an equal basis irrespective of the roles undertaken. In a business system, reward is usually linked to what the person does within the organisation and the market rates for the role with individuals judged on merit.

These different views can create significant complexity within a family business and need to be addressed before it causes conflict in the family or with non-family staff.

Reward can be in the form of money, shares, benefits or promotion. If the business is being run as a meritocracy, reward will be fair and only those who are most competent will have the opportunity to rise to the top.

However, adopting a meritocracy is not always easy and the family will need to shift their beliefs and behaviours towards their wealth and working in the business. Mediated family meetings are a good place to start. Once an approach to family and non-family employment, shareholdings and reward is agreed, guidelines communicated to all employees are essential.

It is also important for family members to make choices about their careers and the path they want to take, in or out of the family business. If they do join the family business then they need to be developed for the roles they take on, be appraised regularly and paid accordingly.

The ‘needs’ based system, that may have worked well when a few family members were involved in the business, is likely to prove increasingly difficult as the family grows and the business develops. This is even more likely to be the case when the business has passed to future generations with different branches of the family involved and more people looking to the family business for roles.

Employing and rewarding family members can be a challenge for anyone. Clearly communicated and implemented rules and guidelines help avoid ambiguity and friction, and form part of the good governance procedures a family business should follow.

Questions to ask:

As a family business there are a number of things that should be considered:

• How are family members recruited into the business?

• How are family members evaluated and by whom?

• How are goals set to manage expectations?

• What happens if a family member is not up to standard?

• Who determines the amount of compensation?

• How are bonuses and benefits calculated?

• How are promotions decided?

Other areas that family businesses should consider when evaluating their policies in this area include:

• Establish the market rate of pay for the roles undertaken and if they are performed by family members, pay them accordingly. This helps to gain the respect of non-family members within the company

• Introduce incentive plans where family and non-family employees share the success of the company

• Clearly differentiate between the rewards that family members enjoy by virtue of employment and ownership

Consider using third parties to appraise and assess the competence of family members and remember to consider all aspects of employment such as career development, motivations and appreciate the need for a good work/life balance too.