Category Archives: Compensation

Should Junior Generation Family Members Get Extra Vacation Time?

Kelly LeCouvie

Many of our clients develop a family employment policy as part of continuity planning. Some of the components of this policy articulate the circumstances under which family members will be hired, compensated, appraised, promoted, and terminated. And often we are told that the family business must remain a meritocracy, where family members earn their positions, and should be treated the same as non-family employees.

This philosophy seems appropriate when often there is much at stake and all employees need to be competent and held accountable. Also, non-family employees want to see that there is opportunity for them, even when their last name is not on the door. Family businesses should be run professionally in order to perpetuate the business through future generations.

That said there are times when exceptions to employment protocol might, and even should be made. Vacation time is one topic that often comes up when next generation family members join the business. They are often just starting their careers and take a position that offers two weeks vacation. However in some cases family members are given one or two additional paid weeks vacation. Senior management permits this for a number of reasons that are in fact, defendable:

  • The family may have meetings about the business while they are on vacation.
  • Junior generation family members are often expected to take courses or attend conferences that are family-business related. These courses often take place on weekends.
  • Family members are often invited to weddings and other events hosted by co-workers or family business associates, that require travel on weekends. Often junior generation members are strongly encouraged by their parents and/or senior management to attend these events.
  • There are often ceremonies and celebrations that are business related, and family members are expected to attend as ambassadors of the business. These events often take them away from their families if travel is required.
  • Community events sometimes require representatives from the business to attend. These are typically in the evenings and again, are responsibilities that family members take on in addition to their day to day work responsibilities.

While all employees sometimes make commitments on behalf of the business that are outside of regular work hours, often for family members it adds up to several days or even weeks in a year. Therefore, consideration is given to additional vacation time in an effort to make up for the significant investment made to work related commitments.

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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?

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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?

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The Entitlement Snare: Exploring Our Boundaries (Part B)

Wendy Sage-Hayward
Wendy Sage-Hayward

Parents in North America are caught in a dilemma. Baby boomers have more money than previous generations and one of our core cultural values is to give to others.  Naturally, parents form the notion that “we have money so we should share it with our kids”. This type of thinking leads to children getting what they want and often much more than they need. They get caught in the entitlement snare.

Recently when working with a wonderfully loving and giving family, I realized that love is not enough – especially in a family business. The famous line “love is all you need” may be leading us to believe in a fallible principle.

Parents need to establish and manage clear, reasonable boundaries from an early age in a family firm. Boundaries are rules or expectations you have as an individual, in your home and family, and in your business. As with many things in life, it is not the articulating of boundaries that is the challenge but rather the enforcing of the same. Most of us have a shared notion, for example, of what we consider to be healthy expectations and rules within our family firms: show up on time, deliver on what you promise, be respectful, accept feedback as positive input to your development, pay your own way and the like.

The real challenge comes with managing our boundaries and doing so with grace, finesse and wisdom. Boundaries can too easily get blurred due to the complexity and emotional context of a family firm. Unfortunately life is not  simple. Circumstances and relationships are not black and white.

As leaders of a family and family business it is imperative to consider what boundaries are important for you, your family and your business. In addition, it is critical to evaluate the type of support you may need to keep your boundaries strong.

One important cautionary note… It is too easy to suggest that we “set and hold” our boundaries one hundred percent of the time.

Sometimes it is fitting to re-assess and move the line you have drawn in the sand to more aptly address the situation at hand. Only good judgment and wisdom can help us understand the rare situations in which we need to be flexible with our boundaries.

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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.

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Questions to Consider Before you Venture into ‘Family Venture Capital’…

Norbert Schwarz
Norbert Schwarz

Some families have thought about providing venture capital or “seed” money to family members who have an entrepreneurial dream. Families that have considered offering such capital often see it as a way to support family members and build on a legacy of entrepreneurship.

Like many good intentions, the challenge is usually in the details. When the family, or family office, begins to develop a plan for providing venture capital several questions must be answered. Perhaps first and foremost is the question of how to establish a policy that will be consistent and can provide equal opportunity within the family’s means.

Other questions that will need to be addressed include the following.

  • What are the criteria for approval or rejection of a venture request?
  • How should expectations be set for the investments? What are realistic expectations?
  • What about non-profit ventures? How should expectations differ for profit and for community based non-profit ventures?
  • What about accountability? What happens if the expectations are not met?
  • Should the investment be administered within the family or family office? Or should the function be managed outside the family with some family governance?
  • What role will the family investment vehicle play in the governance and/or management of the venture being financed?
  • In the event of a failed investment, what can (should) be done to make sure the unsuccessful entrepreneur remains a welcome contributor to the family?

Certainly determining fair and objective criteria for consideration is key.  Most will require the submission of an acceptable business plan accompanied by realistic financial projections, including cash flow “burn rate” and break-even to profitability projections. Normally, these would be on a worse case, best case, and most probable case basis. The plan should also address the repayment of venture financing and expected return on investment to the venture capital provider. Another consideration for approval might include the extent to which the prospective entrepreneur would be wiling to support his/her own venture from both a financial and time commitment perspective.

The review and approval process is paramount in maintaining fairness in a venture capital environment. Some families have considered engaging outside advisors such as investment or banking sources to assist in establishing approval criteria – though these should not be advisors who are currently active in managing family assets or providing services to the family. An outside independent venture capital board might provide a welcome resource for policy development as well as for the process of managing the family venture investments.

A source of venture capital within the family can be a most rewarding addition to an already rich tradition of participation in the free enterprise system. It can also be a major contributor to the family’s efforts in active philanthropy that may enable numerous family members to realize their dreams of active involvement in making a difference in their communities.  While all these intentions are good, make sure you take the time to think through the tough choices and set up clear processes before supporting the first ‘deal.’

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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?

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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?

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