With each installment of our Video Blog Friday’s Series, Paul Karofsky reflects on influential lessons learned from his career working with family businesses. Each Friday, we will provide a new story with a unique topic – so stay tuned! We hope you enjoy the sixth feature in our series, When a Raise is Not Enough, where Karofsky illustrates the need to balance financial raises with the accomplishments of a family member – rather than simply “increasing their allowance.”
Andrew (son): Dad, I’ve wanted to talk with you for a while about this, but, uh, it’s not that easy. I’ve been working really hard, putting in long hours, and have been here almost a year, and a lot of others in the company are earning more than I am. I think I deserve a raise.
Charles (father): Well, Son, I’ve been thinking about it, too, and I’d really like to give you some more money. I thought you had been pretty well paid, but I guess maybe it’s not enough. Do you think an extra monthly amount to cover your new mortgage payments would be reasonable?
Charles reflected on his discussion with Andrew: “This type of conversation with my children always makes me feel uneasy. I think Andrew is being paid fairly for the job he’s doing, but I know he could use some more money to help with his new mortgage and I feel kind of responsible because I encouraged him to buy the house in the first place. He’s such a good kid and he is working hard, but it’s awkward to have this kind of conversation with him. I feel like I’m still handing out an “allowance.”
Andrew also felt unsettled. He reflected: “I’m really starting to feel financial pressure with a new mortgage and all. I appreciate what Dad has done for me, but a lot of people in this company have easier jobs, are less dedicated, work fewer hours, and earn more than I do. My dad earns so much more than I do that I’m not so sure he really understands my situation. Besides, his expenses aren’t going up anywhere near as fast as mine are. I’m twenty-six years old, thinking about getting married and just bought a condominium. I hope I’m not going to always be in this position of having to ask my father for a raise. It sure is tough to do.”
What’s going on…
Andrew’s reluctance and discomfort in asking his father for a raise is obvious. What should be primarily a business issue has become confused as a family issue, thus Andrew’s behavior is like that of a child asking his dad for more money because he needs it, not that of an employee asking his boss for a raise because he has earned it. Andrew is also equating the pressures of a new mortgage, hard work, long hours and the compensation of other employees with being “deserving” of a raise. He also feels financial pressure based on an increasing cost of living, while he thinks his father is not very understanding of this.
At another level, Charles’ agreement to “give” his son some more money can be a blow to Andrew’s self esteem. Rather than being recognized and rewarded for his performance, Andrew is about to be “gifted” by his father’s benevolence. Charles tells us that he, too, is uncomfortable discussing a raise with Andrew, and recognizes he is unclear whether he is thinking as a boss or as a father. In this company, there seems to be an absence of objective criteria on which compensation is based forcing Charles to react more as a father than as a boss.
What should the family do…
1. Address the family business issues quickly before resentment sets in.
2. Andrew needs to adjust his expectations about what it means to work in a family business. Typically, in a family business, family members are expected to be more dedicated, work harder, and work longer hours. They model behavior for everyone else in the company usually reaping their rewards later on through ownership and longer term growth in equity.
3. If possible, Andrew should report to someone other than his dad at this point in his career. He needs the greater objectivity that a non-family boss can offer.
4. The company must establish compensation criteria, not just for family members, but for all employees. These consist of: job descriptions, measurable performance standards, a performance evaluation system, promotion opportunities, salary ranges, and performance bonus plans.
5. Family businesses must resist the temptation to “over pay” family members, lest the recipient get a false sense of worth to the company. In families, allowances may be granted on the basis of need, but in business, salary should be based on function. There may be additional business compensation in the form of a performance bonus, director’s fee, dividend, or sub-chapter “S” distribution but each component of compensation must be clearly defined. There is always the option for Charles to give money to his son for whatever reasons he may choose, but this way it becomes explicit to Andrew that those dollars are indeed a gift and not a reflection of his worth to the family business.
6. Andrew may need to explore further his frustration that his father earns “so much more” than he does. Sometimes, unresolved emotional issues around love, recognition, acceptance, and self-esteem need to be cleared up with more effective communication or they can play themselves out in conflict around money.
All businesses need a compensation policy providing fair and reasonable rewards. It must be clearly defined and based on objective criteria. This will create an environment in which young people can grow and develop with a healthier self-image, less resentment, a greater respect for others in the organization, and a basis for solid financial values.
Paul Karofsky was president of his family’s third generation business. He completed graduate studies at Harvard University doing research in family communication styles. He is the Founder and Chairman of The Peer Alliance and is a frequent speaker and resource to educational institutions worldwide.
