So, You’re in the Family Business… by Paul Karofsky

Carla (wife): I still don’t understand why your father and your brother earn the same money as you. You’re the president of the company. Your brother certainly doesn’t put in the same hours that you do. And your father has been drawing from the company for thirty-five years. I just don’t understand it. You always put your father and brother first. We’ve got our family to consider.

Roland (husband): My father and brother are part of our family. At least they’re part of my family. If it weren’t for them, there would be no business to begin with.

Carla: So you’re saying that they come first again. That’s the way it’s always been. Your brother and father would never think that way. They’d put themselves first every time.

Roland thinks to himself. “Every time I talk with my wife about the business, she thinks I’m siding with my brother and father. She doesn’t understand what it’s like to be partners with them. Sure, we all have different jobs to do, but we are three equal partners and we’ve always drawn the same salary regardless of who did what job. We know how hard each other works and contributes. That’s been part of our success and that’s just the way it is! I wish I could get Carla to understand.”

Carla reflects. “He still doesn’t hear what I’m saying. We’ve got three kids, and his brother has only one. His parents lack for nothing; they have always lived well. We could use some more money at this point. Roland works hard and long. I think he’s underpaid for the job he does. If his father and brother would only recognize his contributions and reward them properly, our lives would be a heck of a lot easier.”

What’s going on?

Carla and Roland have a differing view of “fairness.” To Roland it means equal compensation with his brother and father. To Carla, it means taking care of the needs of her children and recognition of her husband’s contribution to the business. Carla states her criteria for compensation, saying, in part, that salary should be based on need. She believes that her father-in-law and brother-in-law do not have the same financial requirements that she and her husband do. Further, she thinks Roland deserves more compensation for his long hours and hard work. Carla also sees a paradox in her father-in-law’s longevity. For her, thirty-five years with the company means “Enough already!” Carla’s priority is for her family which she defines as herself, her husband and their children. She sees her husband’s acceptance of the current compensation formula as putting other family members “first,” something, she says, they would never do for Roland and her.

Roland meanwhile is looking at different criteria. He, too, expresses a strong sense of family; but his definition of family includes his brother and his father. He recognizes that the success of the business is due to their contributions as well. He believes that the formula of equal compensation for the three partners is one of the factors contributing to the success of the business and is reluctant to disturb that success. And the more Roland or Carla pursues the differing viewpoint, the more likely the other will be to push harder for hers or his.

What to do?

Roland needs to share more with Carla about his feelings on equality and fairness for his entire family. He also needs to listen to his wife’s concerns. As the couple explores their disparate views of “fairness,” they can also discuss how Roland’s father and brother value his contribution to the company. Sometimes, differences of opinion around compensation in a family business reflect underlying feelings that one’s contributions might not be adequately recognized or appreciated.

It might be time to reconsider the company’s current formula of equal pay. This requires that stakeholders in the family business address the process of how decisions around compensation are made and who the decision makers are. In the case of officers in a business, this responsibility is typically that of the Board of Directors. Some companies use an Advisory Board to assist with this function, while others simply use an informal structure of family members working in management positions in the business.

Compensation criteria need to be explicit. Typical criteria include: fair market value of the position’s role and responsibility; educational background, experience and skill; and quality of performance to measurable goals. While some consideration might be given for being a member of the family, that amount needs to be clear as well.

Family members working in the business need to have an understanding with each other around what is and is not “discussible” at home. While siblings and children in business can have their own implicit value system, spouses can quickly subject those values to a new scrutiny. Some families find that compensation discussions are best left at the office and not brought home.

Spouses are partners with an enormously vested interest in the success of the family business and in its reward system. But since their views of injustice are fueled by a one-sided perspective, clear criteria, rules and guidelines are needed to enhance expectations and a resulting sense of fairness.

Paul Karofsky was president of his family’s third generation business.  He completed graduate studies at Harvard University doing research in family communication styles.  Paul is Executive Director Emeritus of Northeastern University’s Center for Family Business and facilitates its Leadership Development Forum.  He is the Founder and CEO of Transition Consulting Group, Ltd and is a frequent speaker and resource to educational institutions worldwide.  Paul consults to family enterprises and can be reached at [email protected] or 561-626-1110.

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