I work with my sister. She has an advanced degree but has spent less time working in the corporation than I have. Our responsibilities are equal. I feel that even though she was hired for more money than I was, after 25-30 years we should make equal salaries. Is equal pay for family executives appropriate?
Equal isn't always fair. Professionalized family firms develop written compensation policies that all employees, whether family or non-family, will find reasonable. Here's one example: “All employees will be paid according to the standards of the industry in our region for the job they do. Bonuses will be calculated on a percentage of the profits of the whole company.”
This kind of compensation policy implies that there will be annual reviews of all employees to determine whether they are meeting the goals for the position they hold, or whether they need to find another job, in the company or outside it. It also implies that family members will not receive bonuses if the company is not profitable. A rising tide lifts all boats, but the captain will be paid differently from the navigator.
In my column entitled “What family businesses are NOT”, I discussed the curious tendency of family-owned businesses to function in socialistic ways in the midst of a capitalist economy. In an effort to avoid conflict, sometimes parents pay all their sons and daughters equally. However, this practice will eventually trigger more conflict, since there will inevitably be differences in tenure, initiative and performance. Welcome to the human race.
Rewarding superior performance is essential to take any business to the next level, especially in a challenging marketplace. If siblings own equal shares of stock, at the end of the year their distributions will be equal, even if their paychecks are not.—Ellen Frankenberg, Ph.D.