Compensation for Family Isn’t Always Fair

Compensation for Family Isn’t Always Fair

by John L. Ward, Ph.D.
Co-Founder and Principle of the Family Business Consulting Group

Next-generation successors in family businesses are wise not to be too concerned about justice in compensation — because they’re likely not to be paid what they’re worth.

Assume that one sibling becomes CEO and has another sibling in management and two others who are co-owners but not employed by the business. The CEO will be and should be shortchanged in two respects.

First, CEOs of most businesses, especially public companies, receive generous stock options that generate wealth for the CEO if the business’ value grows. Family-member CEOs usually don’t have that privilege. They already own or will own stock, most likely in equal shares with their siblings.Their parents carefully set up ownership that way.Stock options, even if technically feasible (and they are very difficult to construct in a private company), create unhealthy equity differences. More…

Why Compensation for Family Members Should be at Market Value

Why Compensation for Family Members
Should be at Market Value

Family Ink
Summer 1996

by Bernard J. D’Avella, Jr., Esq.

One of the greatest struggles of operating a family business is separating the family from the business.Oh yes, there are many great benefits to having family in the business and to being a family member in a family business, but the most difficult problems result when “family values” and issues take over, leaving business values and needs wanting.There is no greater source for family business problems–nor more fertile ground for their cure–than the family business compensation system.

Starting with the premise that family members’ compensation should be a market value, let us look at the various considerations–often conflicting–in a family business, which will in turn demonstrate that this premise is correct. More…