Tag Archives: compensation

Why Do We Work?

David Ransburg
David Ransburg

Many people answer this question quickly by saying one word: pay. While it is true that some people work for financial compensation, not everyone does. In fact, you can probably think of many people you know for whom money is not their primary motivator. Some are mainly driven by being in control while others put a high value on being recognized for their efforts. Others still are primarily driven by the desire to help those in need.

When I say “primarily driven,” I do so because it is quite rare that someone is motivated by a single driver. Typically, employees will have 2-4 motivators that are most important to them, with one in particular being a little more important than those that follow.

A number of researchers have attempted to understand the various motivators that provide purpose for workers, and I’ve found that the list generated by Hogan Assessment Systems to be particularly useful, especially when it comes to family businesses:

  • Recognition: Responsive to attention, approval, and praise
  • Power: Desire for success, accomplishment, status, and control
  • Hedonism: Orientation for fun, pleasure, and enjoyment
  • Altruism: Help others and contribute to society
  • Affiliation: Desire for and enjoyment of social interaction
  • Tradition: Dedication, strong personal beliefs, and obligation
  • Security: Need for predictability, structure, and order
  • Commerce: Interest in money, profits, investment, and business opportunities
  • Aesthetics: Need for self-expression, concern over look, feel, and design of work products
  • Science: Quest for knowledge, research, technology, and data

The above list is important for family businesses for a couple of reasons. First, I’ve found that family businesses are typically very clear about their purpose, and they make great effort to hire employees who share that purpose. If, for example, you are a family business that is primarily driven by helping others (“Altruism”), then being clear about that characteristic will help you to find employees who share that purpose… and will likely do better work as a result.

Second, as a manager in a family business, understanding that your employees will not all be motivated in the same way means that you can tailor your management to fit the specific drivers of each employee. For example, giving an award for “Employee of the Month” may do very little to motivate a worker who doesn’t care about “Recognition,” but that same award will likely mean a lot to someone for whom “Recognition” is at the very top of their list.

What drivers are most important in your family business?


A Surprising Benefit of Low Pay in Family Businesses

David Ransburg
David Ransburg

I recently met with a family business owner who is quite open about the fact that he consistently pays his employees at a below-market rate. Given that he also makes great efforts to ensure that his company delivered the very highest level of quality, I questioned him about his low pay strategy.

I thought – somewhat naively, it would now appear – that higher quality demanded higher employee wages. He believed that low pay helped him to find the right employees for his company – those who would be dedicated, hard working, and have a strong belief in the company’s vision and mission. In other words, offering low pay – and having a reputation for doing so – provided his company with employees who weren’t working solely for the money. And, he believed, an employee who works for reasons other than just the money is an employee who will ultimately deliver higher quality.

While I remained somewhat skeptical, his argument did move me slightly because it reminded me of the common refrain about the low pay received by teachers. Even though all agree that teachers are so important, we, as a society, want them to be passionate about their jobs and to see their work as meaningful – not to do it for the money alone.

Now, there’s some research that further supports this line of thinking. The Institute for the Study of Labor (IZA) in Bonn found that relatively few workers are motivated by their organization’s mission, BUT those who are so motivated provide substantially higher effort AND receive lower pay. Granted, higher effort does not guarantee higher quality… but, I would suggest that it’s a good start.

Have you found a similar benefit of low pay in your family business? Or, are there other surprising benefits of low pay that you’ve seen?


Pay for Succession?

David Ransburg
David Ransburg

When most family businesses hear the phrase, “you will pay for succession,” they likely think it means that there will be pain associated with the process of transitioning from one generation to the next. I’m here to suggest another, more positive way to think about that phrase… and this new way of thinking comes from some of the world’s largest publicly traded companies.

A recent article in the Wall Street Journal identified a growing trend where publicly traded companies have begun providing outgoing CEOs with compensation that is directly tied to grooming their successors.

For example, outgoing Intel CEO Paul Otellini had the opportunity to earn up to $4 million in extra pay if he successfully met certain criteria associated with preparing his successor, Brian Krzanich. While the company’s Board of Directors determined that Mr. Otellini had met some of that criteria, his performance was not sufficient to earn the full bonus – he received half.

This new approach is, I believe, especially interesting for family businesses because succession is one of the biggest challenges – if not THE biggest challenge – facing many family firms. Succession – or as we at FBCG like to call it, “generational transition” – is an extremely complicated issue that is influenced by many factors (e.g., Is the next generation prepared to take over the family business? Is the business viable?), but one of the common roadblocks to successful transition is often the incumbent’s reluctance to let go. That reluctance alone can be a very challenging knot to loosen, but the publicly traded companies mentioned above have given us another tool with which we can tackle that reluctance “roadblock”: pay.

While extra pay alone is unlikely to be sufficient to get most incumbents to let go, it can certainly be a powerful incentive to increase the likelihood that they will do so. From now on, perhaps, the idea of “paying for succession” will take on a new, more positive meaning.

Have you ever paid an incumbent for grooming their successor? If so, how well did it work? And, can you think of other forms of “pay” that might be even more effective than money?


Paying the Board

Bernie Kliska
Bernie Kliska

A board of directors can help your company set long range goals as well as address pressing business issues.  To get the most value from a board, they should be compensated fairly for their time and related expenses.  It is recommended that a board should meet at least four times a year and careful thought should be given to their advice.

Some sort of an honorarium is usual for board members.  It can range from $250 to $5000 (or more) per meeting.  The level and type of compensation depends on the size and type of the corporation.  One possible way to figure compensation for a director is to take the top salary of the company’s CEO and apply the following formula: divide the total compensation of the CEO by 2000 hours.  Multiply the results by about 50 hours, which represents four full day meetings, plus some preparation and telephone time.

The key issue to be considered is the extent to which the director adds substance to the family business.  If there is going to be pay for board members, they should be people who add more value than they cost.  Family members who serve by birthright rarely provide real value as directors unless they have the qualifications to be selected as board members for other businesses.

Typically, indemnifying directors from legal liability is sufficient to attract qualified candidates, although some companies buy officer and director’s liability insurance as added protection.  For emergency meetings, it is a good idea to pay extra to enhance the director’s willingness to rearrange his or her busy schedule.

Your respect for your director’s involvement should be reflected in the fairness of his or her compensation.


Communications, Compensation and Corporate Culture

Amy Schuman

Many family businesses struggle with the question – how much financial information can we share – both with employees and with other family members? In fact, one negative stereotype of family business culture is of a secretive owning family that only fully trusts a small inner circle.

Yet sometimes, family culture can work in the opposite, positive, direction. Many top performing private companies extend the ‘family culture’ well beyond blood relatives. The Midwestern retail business referenced earlier this week is a passionate proponent of ‘Open Book Management’ – where all team members, at every level of the company, have full knowledge of the company’s financial goals and performance – and where everyone shares in generous profit sharing. Innovative bonus programs give every co-worker the opportunity to build for a secure retirement, based on company performance.

At year end, the founder and members of his top management team hold a series of meetings to report on company performance, set goals for the coming year, and most important – thank every co-worker for their hard work and contribution. In these meetings, the company’s mission and values – directly shaped by the values of the owning family – are reviewed and reinforced with examples from top performing stores. Though the timing always coincides with the busy holiday season, the top team spends a full week travelling the mid-west to these meetings, going out to the co-worker’s locations to thank them where they live and work. 

These actions speak as loud as the words.  And the results are more than only on morale.  The ‘family’ culture that this company works hard to create and sustain leads to some fantastic financial results. Stay tuned for more later this week…


CFO Issues

We were recently with a forum of 10 non-family CFOs of large family businesses. When asked what are the “family business” issues most on their mind, they responded with the following (in no particular order):

  • Airplane use
  • Incentive compensation
  • Board effectiveness
  • Keeping family shareholders informed
  • Dividend levels
  • Assuring stock redemption funds

Where do YOU draw the line?

Chris Eckrich
Chris Eckrich

Position #1:  Our family built this business and we take on all the downside investment risk.  As owners, we take many ownership perks (club memberships, cars, personal services performed by the business) so our owners appreciate some upside at very little cost to the business, providing that it is legal.  That is what being an owner is about.

Position #2:  We believe that owners deserve investment growth and dividends (when performance supports them), and we do not give owners any other special perks.  That way our owners are focused on the performance of the company.  Once you start having ownership perks, it just causes strains between management and owners and distracts us from our common purpose.

Where is the proper place to draw the line when it comes to taking ownership perks?



Bernie Kliska

A question often posed is, “Which comes first, the family or the business?” If yours is a ” family-first” business decisions are often made that primarily benefit the family. For example, you pay family members more than their job pays on the open market. Also family members are guaranteed a job. If you are a “business-first”, you run the business strictly as a business; you require family members to get the education, experience, and other credentials to qualify for a job. And compensation is based on what the job merits. Whichever approach you take has long term implications. While there is no right or wrong system you may realize you may not be where you want to be. If you own a strictly “business-first” business you may want to ease some of the rigid rules that do not meet the needs of a growing family. For example if you have both a son and a daughter who are highly qualified and eager to join the family business, but you have only one position, you might consider changing the structure to allow both children to contribute. On the other hand, some “family-first” decisions that are meant to keep peace in the family may instead breed dissension among the next generation and threaten the business’s and family’s long term interest. Schuman, Stutz and Ward in their recently published book, Family Business as a Paradox, developed an excellent assessment to help families determine if they are a “family-first” or “business-first”. They also suggest, “One of the most powerful challenges in family businesses is managing the natural occurring tensions between the family and the business. Wise families know that the answer to this dilemma is to not choose one over the other, but be aware of the primacy of both”. Every family must decide what is best for them. Balancing both the family and the business goals require compromise, extra effort, extra planning and extra communication. The goal is to preserve the integrity of the business, while serving the needs of the family.


Should Family Council Members be Paid?


Amy Schuman
Amy Schuman

One family pays its Family Council President a salary comparable to that of the company President and CEO. The underlying theory is that both roles are equally important to the successful continuity of the family enterprise.

Another family has a young cousin that spends 20 hours/week on family council matters, but will not accept a salary. Her perspective is that she is not working actively in the business, but gains tremendous financial rewards from the business. She sees her participation in the Family Council as a way of ‘earning’ those financial benefits.

In another case, a family with a California-based retail business began paying Family Council members a small salary after years of intensive, unpaid work on family council activities. Instead of having a positive result, this practice led to widespread bad feelings. Family members that had worked on family council activities in the past – with no compensation – felt unfairly treated. If the current family council really cared, they reasoned, they wouldn’t accept any financial compensation for this service. Tensions in the family were heightened until the practice was discontinued.

So, once again, we are faced with a situation that has no clear ‘right’ answer. Paying a salary for Family Governance service is an individual decision, and each family will approach it differently.

It would be fascinating to hear your experiences on this matter – what is working for you?


Tensions in Family Governance


Amy Schuman
Amy Schuman

A large family business in the Midwest with an active – and highly effective – Family Council has been struggling recently with two nagging questions: 

  • Should the bulk of Family Council work be done by one designated leader, or should it be spread out among committees and committee chairs?
  • Should we pay Family Council leaders and committee members for their time and efforts? If so – how much pay is reasonable?

Clearly, on the first question, a ‘both/and’ approach is desired, but not always easy to accomplish. 

One strong, designated leader provides efficiency and clear accountability, but can also lead to a de-motivated and disconnected family.  Relying too much on one person for a long period of time may lead to their burnout, with no prepared successor. Others in the family may not fully develop their leadership abilities or have the pleasure of serving as leader. 

On the other hand, an active group of committee members and committee chairs provides a wider family connection and fosters family passion and commitment, but can take a lot more time to get things accomplished. It’s hard to hold a group accountable for results, and the Family Council can bog down in the face of multiple, often diverging approaches and opinions. 

This paradox – the need for both “Strong Centralized Leader and Strong Dispersed Group” – is probably very familiar to you. Although at first the two appear to be mutually exclusive, upon closer examination we can see that they actually support each other. A strong individual leader will foster strength in committees, and strong committees create conditions for strong individual leadership. 

Have you faced this common tension – and if so, what has been your experience? 

We’ll talk about Family Council compensation later this week… stay tuned.