By Richard M. Segal
March 31, 2011
How to compensate has been a dilemma since the hunting and gathering societies. From communism to capitalism mankind has questioned the value of work, education, time and brawn. Even within capitalism, we range from “performance bonus” to “union scale” – a wide variety of employment reward systems to say the least.
Family businesses are notorious for confusing the business and family systems. It is no different when it comes to compensation. Family members are usually cast outside of the compensation policy used to reward the rest of the employees. Bad practices evolve from bonuses for house down payments or having babies to underpayment with the premise that “one day this will all be yours…” Probably the practice that heads the top ten list of bad practices is paying all the children equally regardless of their relative value to the business, educational background, experience or expertise – that is unless you pay someone for being non-productive and even staying at home.
While there is no “right” compensation policy, there is a process that will solve inequities and the annual debates.
Make no mistake, you do have a policy even if it isn’t in writing.
If you are not sure what it is, just ask around.
One way or another, if you don’t have a written policy, then your employees will respond somehow with “management discretion,” or something similar.
While that is a policy, you may want to draft something more specific that will provide for both the family and non-family in a fair manner.
Philosophy
Start with a compensation philosophy. How does your industry pay? How does your company fit into the industry standard? Is your compensation policy individually performance based, or is it more of a team effort reward system? Do you reward goal achievement? Do you promote from within to increase compensation potential? Is your fringe benefit package optimal or minimal? How are profits shared – if at all?
Draft a few paragraphs that state your company’s compensation philosophy. It will make the rest of the task that much easier. Keep in mind that you want to be competitive in your market to attract and retain good employees.