April 23, 2010

The Fair Factor of a Family Business

I've bumped into one topic several times in the past few days and figure that somebody who follows this blog will benefit. "That's not fair", we all say this as kids when a sibling got some thing or privilege that we did not. Where was the equality????? As parents we do try to be fair with our kids and, for the most part, kids expect that their parents will do right by them. Hence the outrage when they experience a violation of the code.

Fast forward to real life where guess what? Life's not always fair, especially in the work place. Is that bad? Can we still cry "That's not fair!" Nowhere does this issue of fairness become a convoluded contest of contestents and judges of equality over performance than in a family owned business. A very wise working partner in a family business pointed out to me that trouble erupts when you apply the same principles of family life to a business culture. It just doesn't work. Compensation and promotion must be based on performance not the membership card to the gene pool.

Not easy to implement when you have siblings or cousins (of any age) working in the business. Just because you own equal equity does not mean equal compensation.

What to do? Three principles to guide family member/owner income from the family business:
  1. Family members should share equally in business equity, especially if inherited from parents. Any draws on equity should be handled following strictly agreed to policies that are consistently applied to all family member owners.
  2. Compensation (salaries, commissions, bonuses, etc...) for family and non-family should be based on the market value of the employee within your region's economy and circumstances. Inflated salaries for family members will have non-family employees stormin' for the door.
  3. Family members not employed by the business should never receive benefits of employment.
These principles will serve you well in times of "That's not fair!". They will also give non-family member employees a sense of fairness. It doesn't matter if you are 8 or 48, we all want to be treated fairly, if not equally. 

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