Some of the Solutions of Compensation Plan
Developing a fair compensation plan for the family business is not easy. It requires good faith,
trust, and good business sense. The dollar amounts offered to family members will be critical,
but the more pressing issue is fairness. [35] Unfortunately, fairness is often construed as equality.
This must be avoided.
There is no template for designing a compensation plan for family businesses, but there are
several recommendations: [36]
• Develop accurate job descriptions for each employee that include responsibilities, level of authority,
technical skills, level of experience and education required for the job, and goals for an annual
performance review. In a performance-based company, the amount of stock owned by a family member
will not be related to his or her compensation.
• Develop a clear philosophy of compensation so that everyone understands the standards that are used to
pay people. The following is a sample of a written compensation plan philosophy that was developed by
one family.
Family members employed in the business will be paid according to the standards in
our region, as reported by our trade association, for a specific position, in
companies of our size. In order to retain good employees we will pay all employed
family members and other managers within the top quartile of our industry’s
standards. Additional compensation will be based on success in reaching specific
company goals, with bonuses shared among all members of the management team.
Individual incentives will be determined according to measurable goals for job
performance determined each year, and reviewed by the appropriate manager. [37]
• Gather information about the salaries of similar positions in the industry of the family business in the
applicable region of the country. Look at companies that are similar in the number of employees, revenue,
and product. If possible, obtain salary and benefit information.
