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…