How much should family members working in a family-owned business company earn?
http://www.ducttapemarketing.com/article/articles/280/1/How-much-should-family-members-working-in-a-family-owned-business-company-earn/Page1.html
Al McClymont
By Al McClymont
Published on 03/28/2007
Business management in family-owned companies is conditioned, as in any other company, by economic and organizational factors, but also by emotional issues. A very delicate issue revolves around setting compensation for family members that work in the company.
How much should family members working in a family-owned business company earn?
Autologica presents the sixth and final part in a series of articles that address some of the common problems and situations that arise in family-owned businesses. The articles are based on an interview between Al McClymont, CEO of Autologica Dealer Management Systems, and J.C. Aimetta, an expert and coach who specializes in family-owned businesses and who has ample experience consulting for this type of company.
<b>Al McClymont</b>: I have one last question that I am sure you hear many times, and I also imagine that it’s one that makes for heated debate every time you give your opinion.
How much should family members working in a family-owned business company earn?
<b>J.C. Aimetta</b>: A simple and convincing answer should be: Exactly the same that would be paid to any other employee as competent as the family member, for the same job in the company.
Another way of defining this would be: the same that this person would be able to earn if he or she worked in a different company.
Sometimes I joke about this, and suggest that family-owned businesses should ask a family member that is working and earning money there to send his CV to the companies offering jobs in the classifieds. If after two months the CV has not been chosen for a job interview, the conclusion is simple: the only place where this relative can work is in this company. And they are not working there because of their aptness, but because they are a relative.
It is also necessary to pay attention to <b>“hidden income”</b>. What do I mean by this? I am referring to the possibility of enjoying economic benefits that are not strictly remuneration.
In family-owned businesses, it’s common that the family and company cash registers get “confused”. The cable bill is paid through the company cash register, the car payment is made from the company cash register, holidays are paid from the company cash register.
Therefore, there is a lack of control over withdrawals. Hence, this is a person who earns little but actually takes a lot. As this is not transparent, the equation is foggy at best, and can generate many conflicts.
What are the things that should be avoided by a relative working in the company? First, they should not use things from the company for their own benefit. The company PC is for invoicing, not for someone’s son to play videogames. The company pickup truck is for promotions, or to transport merchandise, or fertilizer, not to go barhopping in the next town.
These things that seem like minor details entail benefits for a relative that would not be available to another employee. Who owns the pickup truck? The company or the family? If it belongs to the company, it must be strictly used for the company’s goals. Telling this to a son may be hard, but it is the way to avoid future predicaments.
Something to consider regarding salary is what we mentioned before: the company should pay the family member the same that any other person would earn for the exact same job, neither more nor less.
Many family businesses pay more, because “the child cannot live with this”, or pay less because “this will all be yours in the future”.
Both scenarios represent an inequality and a source of conflict.
The first one because it means the only way for the owner’s son or daughter to increase their salary is to have more children of their own. And the second one because today’s profit is being unjustly differed to the future.
So, the most appropriate thing to do would be to set salary levels according to the job performed. The same salary another person would earn. This means the company should have, and this is not usually the case, its salary structure clearly defined and should know how much each position earns, instead of thinking how much a relative should earn.
Read the previous articles in this series:
<UL><LI>Part 1: The main reasons a family-owned business can fail
<LI>Part 2: What happens when one family member wants to sell their share
<LI>Part 3: How to reconcile the interests of family members who work in the company, with the interests of those members who don’t
<LI>Part 4: How to plan for succession in a family-owned business
<LI>Part 5: Specific problems that may arise with the plan for succession</UL>
© 2007 Autologica SA
<b>About the authors</b>
<b>Al McClymont</b> is founder and CEO of Autologica Dealer Management Systems (www.autologica.net). Established in 1994, Autologica helps automotive, agricultural and construction equipment dealers around the world increase their bottom line through the use of its Windows-based dealer management systems and CRM tools. Autologica has a presence in South Africa, the Middle East, Asia-Pacific, Mexico and South America. His blog can be found at www.thelightisgreen.com.
<b>J.C. Aimetta</b> is a consultant to more than 65 small and medium family-owned businesses, and a negotiator in family conflicts and in the sale of family-owned businesses. He is also a professor on the subject in graduate and post-graduate courses in 3 Argentine universities, and has given conferences in Panama, Guatemala, El Salvador, Costa Rica, Colombia, Ecuador and Venezuela.
<b>Al McClymont</b>: I have one last question that I am sure you hear many times, and I also imagine that it’s one that makes for heated debate every time you give your opinion.
How much should family members working in a family-owned business company earn?
<b>J.C. Aimetta</b>: A simple and convincing answer should be: Exactly the same that would be paid to any other employee as competent as the family member, for the same job in the company.
Another way of defining this would be: the same that this person would be able to earn if he or she worked in a different company.
Sometimes I joke about this, and suggest that family-owned businesses should ask a family member that is working and earning money there to send his CV to the companies offering jobs in the classifieds. If after two months the CV has not been chosen for a job interview, the conclusion is simple: the only place where this relative can work is in this company. And they are not working there because of their aptness, but because they are a relative.
It is also necessary to pay attention to <b>“hidden income”</b>. What do I mean by this? I am referring to the possibility of enjoying economic benefits that are not strictly remuneration.
In family-owned businesses, it’s common that the family and company cash registers get “confused”. The cable bill is paid through the company cash register, the car payment is made from the company cash register, holidays are paid from the company cash register.
Therefore, there is a lack of control over withdrawals. Hence, this is a person who earns little but actually takes a lot. As this is not transparent, the equation is foggy at best, and can generate many conflicts.
What are the things that should be avoided by a relative working in the company? First, they should not use things from the company for their own benefit. The company PC is for invoicing, not for someone’s son to play videogames. The company pickup truck is for promotions, or to transport merchandise, or fertilizer, not to go barhopping in the next town.
These things that seem like minor details entail benefits for a relative that would not be available to another employee. Who owns the pickup truck? The company or the family? If it belongs to the company, it must be strictly used for the company’s goals. Telling this to a son may be hard, but it is the way to avoid future predicaments.
Something to consider regarding salary is what we mentioned before: the company should pay the family member the same that any other person would earn for the exact same job, neither more nor less.
Many family businesses pay more, because “the child cannot live with this”, or pay less because “this will all be yours in the future”.
Both scenarios represent an inequality and a source of conflict.
The first one because it means the only way for the owner’s son or daughter to increase their salary is to have more children of their own. And the second one because today’s profit is being unjustly differed to the future.
So, the most appropriate thing to do would be to set salary levels according to the job performed. The same salary another person would earn. This means the company should have, and this is not usually the case, its salary structure clearly defined and should know how much each position earns, instead of thinking how much a relative should earn.
Read the previous articles in this series:
<UL><LI>Part 1: The main reasons a family-owned business can fail
<LI>Part 2: What happens when one family member wants to sell their share
<LI>Part 3: How to reconcile the interests of family members who work in the company, with the interests of those members who don’t
<LI>Part 4: How to plan for succession in a family-owned business
<LI>Part 5: Specific problems that may arise with the plan for succession</UL>
© 2007 Autologica SA
<b>About the authors</b>
<b>Al McClymont</b> is founder and CEO of Autologica Dealer Management Systems (www.autologica.net). Established in 1994, Autologica helps automotive, agricultural and construction equipment dealers around the world increase their bottom line through the use of its Windows-based dealer management systems and CRM tools. Autologica has a presence in South Africa, the Middle East, Asia-Pacific, Mexico and South America. His blog can be found at www.thelightisgreen.com.
<b>J.C. Aimetta</b> is a consultant to more than 65 small and medium family-owned businesses, and a negotiator in family conflicts and in the sale of family-owned businesses. He is also a professor on the subject in graduate and post-graduate courses in 3 Argentine universities, and has given conferences in Panama, Guatemala, El Salvador, Costa Rica, Colombia, Ecuador and Venezuela.