Tag Archives: Pay

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?


Merry “Charisma Wrist”???

David Ransburg

During the winter holidays, I heard a young child mispronounce “Christmas” as “Charisma Wrist,” so I now have charisma on my mind. As one who’s been fortunate to work with many effective leaders of family businesses, I’ve been thinking more specifically about charisma and whether or not it’s important for leaders.

At least in Western culture, there is an archetype of leadership where charisma is one of the first qualities that come to mind. Think George Patton, John F. Kennedy, or Martin Luther King, Jr. In business terms, leaders like Lee Iacocca, Jack Welch, or Steve Jobs fit the bill. These leaders were all forceful, dynamic, charming, and magnetic. In a word: charismatic.

Recent business thinking has turned that thinking on its head… or, at least it’s begun to. Most widely known is Jim Collins’ concept of a “Level 5 Leader” from his book, Good to Great. Briefly, Mr. Collins’ extensive research into those few companies that demonstrated years of above-average performance after years of below-average results showed that these companies’ “Level 5 Leaders” were described with words such as humble, timid, modest, and shy. In other words, un-charismatic.

Even more compelling evidence in support of the “un-charismatic” leader, in my mind, is research conducted in 2004 by Tosi, et. al. They studied Fortune 500 companies and found that CEO charisma did not predict company performance. The one thing that was influenced by CEO charisma? CEO pay.

Merry “Charisma Wrist,” indeed (at least if you’re a charismatic CEO!).

What are the key traits that you see in the leaders of family businesses?