Family Business – Paying Family Members

For most people, taking up employment is a rite of passage as they grow from adolescence to adulthood. Moving directly into a job from school, or taking time out to go to college – or travel perhaps – before embarking on a career, is a well-trodden path that all but the few embrace. It’s a challenging time of life for anyone.

In terms of remuneration, most of us recognise that there is a market rate for the job we decide to go for. Plus or minus a few percentage points, it’s likely that what we achieve – unless there are some unusual factors – is what we expect.

In family businesses, there are other issues to consider, because for anyone deciding to work in the family business, there will be a range of emotions and expectations to get in balance with the real world of business itself.

Deciding on how to pay these new family business members will be a sensitive activity to agree between existing family members already in employment; non-family members working in the business and – just as importantly – those stakeholders in the business who are not involved in the day to day running of it, yet have an interest in the financial outcomes both now – and into the future.

The debate can go back and forth. A family member joining the business with a serious expectation of ‘One day this will all be yours‘ might have lower expectations for the pay they will receive in the short term. This could be a valid reason for underpayment for any family member, who will have more potential return over future years to consider.

On the other hand, it is quite easy to see how family members might sometimes be paid more than they might expect – after all, the business does belong to the family, so why should some of the value not be shared out through salary and other employment based remuneration, such as bonuses.

And in the real world, a family member might well be best served by somehow receiving what an objective observer might suggest would be the market rate for the job. There is much value in this ideal. If an individual were to be treated differently than anyone else, how would that serve them as a developing individual?

By ensuring that processes are in place to support an objective view of remuneration for all employees and where a family member sits within that, might well be the most appropriate way forward.

There are specialists in family business who can help with this objectivity, both because they are outsiders whose only goal is success for the business and future generations and because they can also share experiences other family businesses have gone through to make family member remuneration work.

The key to success in this sensitive area is to create a new generation who respect the values of the family business in respect to fairness and transparency, thus anchoring a strong foundation for the future.

Can Family Business Consultation Improve Your Business

Do you know what family business consultation is? First let me tell you what it’s not: family business consultation is not therapy. Instead of focusing on the past and all the problems of the family, he focus is on improving the function of your business (which may of course also improve family relationships). We don’t go deep into your childhood or sibling rivalries. The results of this work are measured by improved business performance in the here and now.

In my work with family businesses, there are four components that I have found to be crucial. These include managing conflict, succession, communication, and roles.

Manage Family Conflict

As part of a family business, you know how quickly conversations can degenerate into conflict. Arguments are more likely in a family business because family members are more comfortable with each other (and therefore less censored) than regular co-workers. Not only can workplace conflict hurt relationships among family members, it can reduce your credibility and professionalism with other employees.

To get better results and enjoyment from your business, you and your family can:

o Recognize the causes of business disagreements.

o Change the course of communication before conflict develops.

o Better understand family member’s views on business issues.

o Assertively state your thoughts and opinions.

o Develop a system for handling disagreements in a private office (not in front of employees).

Do you think you and your business will perform better with lower conflict? I bet so.

Plan for Change in Business Structure & Succession

Your business will eventually change over time. You may consider bringing on junior partners, promoting someone, or creating new titles and responsibilities for people. Family members, business partners, or investors may consider a change in the business structure. Planning for succession is a key component to the success of a family business.

To effectively plan for your business’s succession, you should be able to:

o Openly discuss issues related to succession.

o Learn how people really feel about taking over the business–don’t assume that your son or daughter really wants to or feels comfortable telling you how they truly feel.

o Address potential challenges to a new partnership or business structure up front.

o Anticipate family members’ and employees’ positive and negative reactions to changes.

o Ensure a smooth transition into your new business structure.

Enhance Family Business Communication

Many of the family businesses I have worked with surprised employees (and even me!) by how much they argue. In your family, it may feel normal to have disagreements or even a heated argument. It may blow over and no one is bothered much by it.

Even when this enters the workplace, it may still feel natural to you and you may not even notice

– but other people do. And it often makes them feel uncomfortable. Simple conflicts and communication difficulties can block your business’s ability to thrive. The good news is that these challenges are easy to address. Family business consultants helps to:

o Point out communication problems.

o Coach family members on developing new communication patterns.

o Establish regular times for family business members to have meetings.

o Make meetings more effective and efficient.

Clarify family member business roles

The fourth key point is role clarification. A common problem in many family businesses is that individual roles and responsibilities tend to get blurred. Have you experienced this? You and your family members step on each other’s toes and it isn’t clear who’s in charge of what or whom?

Business roles are different from family roles. This can become confusing – not just for family members, but also for your employees, and even customers. An absence of role boundaries often results in communication difficulties and conflict.

To have a thriving family business you need to:

o Clearly identify and label specific business roles for each family member and employee.

o Ensure that each individual is content with his or her business role.

o Outline job descriptions and responsibilities for each individual.

o Create clear roles for new hires.

o Establish the organization’s hierarchy and determine who reports to whom.

As a family business, you have a unique opportunity to thrive. In my experience, family businesses have more passion, creativity, and loyalty than the average business. Once you harness these things and address the four components of conflict, succession, communication, and roles, your business will thrive. And on a final note, don’t forget to spend quality non-work-related time with your family members.

Making the Family Business

What is a family business? The small mom and pop store at the end of the street, you know the types. That’s the normal thought when people think about family businesses, but how about companies like Wal-Mart? A $400bn+ revenue per year company. Founded by Sam Walton in the 1960’s and whose eldest son, Robson, is the current chairman of the board. In fact some statistics state that approximately 35% of Fortune 500 companies are family-controlled and that family businesses account for 50% of U.S. gross domestic product and employ the bulk of the US work force. However, only one third of family businesses make it passed the second generation.

It is these types’ statistics that make family businesses such an interesting proposition. But what makes that “one third” of them so successful?

1. Passion

“When work, commitment, and pleasure all become one and you reach that deep well where passion lives, nothing is impossible” – Unknown

The enthusiasm that family business owners bring to their business, the extreme attention to the tiniest of details or the out of the box thinking; are all signs of the passion that the family business owner portrays. After all, in most cases, there’s no fall back for them, so the choices they have to make are the ones that they’ve created themselves.

This passion is not to be confused with good leadership. One does not necessarily lead to the other but when combined effectively can be tremendously rewarding.

2. Commitment

“There’s a difference between interest and commitment. When you’re interested in doing something, you do it only when circumstance permit. When you’re committed to something, you accept no excuses, only results” – Unknown

Often, the family business members commit everything to their venture. After all, it’s not just them but the other family members who are relying on their success and if it doesn’t work its all the family that will feel the consequences. This factor is a large driver of the first generation family members of the business. Unfortunately the second generations sometimes don’t feel like they have a choice about joining the firm or they take it for granted and the level of commitment drops significantly.

3. Pride

“Pride is a personal commitment. It is an attitude which separates excellence from mediocrity” – Unknown

One of the success factors of a family business attention to detail and adherence to high quality standards; this translates into great products or high levels of service which is often the differentiating factor between a family business and their nearest competitor. This pride in their achievement often leads to a specific organizational culture of the same high standards, and as the business grows this kind of culture gets ingrained and gives the family business the edge.

There are, no doubt, other reasons why specific family businesses become a success, but passion, commitment and pride will be three factors that have the potential to make a real difference.