A fair wage in the family businessFamily businesses are the cornerstone of the British economy
It is usually best to pay a basic salary, reflecting the market rate for the job, and a bonus, reflecting performance against pre-determined objectives – just as you would for any non-family executive working within the business. However, strategies can be put in place to give family members more money, for example, the owner-manager could establish an executive family committee for which each family member is paid a fee.
Alternatively, and if it fits in with the long-term share structure of the company, family members could be given a class of shares which pays a regular dividend to top up their market value salary.
Families should address remuneration concerns by the development of specific employment policies for family and non-family members. The principles should be cast in stone and made known to the next generation.
There are a number of important issues to consider when creating a remuneration plan:
- Does too much pay to family members encourage lack of commitment and bad habits?
- Does too little pay lead to the best qualified family members seeking employment elsewhere?
- Does the pay of family members affect the pay of others in the organisation?
- Are family member pay issues leading to more ‘secrecy’ in the organisation?
- Are levels of pay for family members commensurate with the roles that they perform in the business?
There are a number of common pay problems within family businesses that can have a detrimental impact on both staff and the company:
- Role confusion
- Using pay to achieve tax savings