Compensation Classics - Fairness of Blood and Sweat vs. Fairness of Bloodline - Family Businesses

Author: Barbara Specter (USA) / Country: Mainland China
Publisher:
Publish Date: 2005-05-01
Features: When discussing business topics in family enterprises, discussions often get stuck at unexpected points, even over trivial matters, which frequently trigger strong emotional reactions. This is because the issues being discussed touch upon one or more "emotional issues" present among the attendees. These "emotional issues" are irrational and closely tied to personal feelings, often involving personal grievances among relatives. In many cases, the person who gets emotional may not even be aware of the true reason for their intense reaction. People often refer to "emotional issues" as "soft problems" because they are not straightforward or obvious, relying more on emotions than rationality. It must be emphasized that such emotional issues must be handled effectively. From a family perspective, only by managing these matters well can the family further manage the company and optimize its prospects for success. Additionally, the existence of these emotional issues can long-term poison the family atmosphere. It is important to know that in the context of family businesses, there are countless opportunities to trigger these emotional issues, creating endless conflicts. Moreover, families running businesses cannot, like ordinary households, temporarily separate the conflicting parties to ease the situation through such simple means. The operation of the business requires family members to interact and communicate with each other. A large number of emotional issues revolve around the theme of "trust." Highly trusting relationships between people can overcome misunderstandings, communication failures, and discord; whereas a lack of trust can lead to obstacles over minor matters. The foundation of interpersonal trust boils down to two key points: 1) Keeping promises; 2) Clearly expressing one's intentions. Trust is also linked to fairness: "If I do not trust the motives of the salary scheme designer or the basis for constructing the scheme, then I cannot believe that the salary I receive is fair." Accompanying trust are a set of emotional issues centered around "honest communication": "If I believe that the two sides have not engaged in an open and honest discussion, it will be difficult for me to be confident that I have been treated fairly, and thus difficult to trust the final outcome." Open and honest communication requires both parties to lay all the facts on the table and discuss them openly, without hiding sensitive topics under the rug. We have found that discussing these emotional issues during daily company work or family gatherings is almost impossible. This is because the surrounding distractions are too great, making it hard to focus on one point, and everyone talks at once, quickly derailing the discussion. Our suggestion is that the family should select a quiet, undisturbed location to arrange a series of special meetings and establish some basic rules in advance to focus on these issues and other major business plans. Ideally, the meetings should conclude with a carefully designed governance framework to help clarify the boundaries and intersections of responsibilities and interests for all stakeholders in the family.
Family Business Salary Guidelines
The business plan of a family enterprise should be rational and thorough, taking into account countless related issues, and thus can be viewed from a long-term perspective as fair and operational. This means that the basis for decisions should shift from "family" to "business," overcoming and transcending choices and policies made based on personal feelings or individual reasons, and treating salary issues as matters of the company. Based on years of experience, we have developed a set of guidelines and application strategies for family business salaries, which seem to be effective in resolving these complex issues. It is highly beneficial to formulate several guiding principles or policy stances, from which specific salary plans can be derived. The implementation of these principles should be objective, systematic, cohesive, and widely applicable. Do not treat them as rigid codes but adjust and apply them according to specific circumstances. The salary and benefits a family member receives from the company should be based on their status as an employee of the company and the number of shares they own. Family employees should receive salaries based on their positions in the company, according to "fair labor market value." Logically, the rationale for this principle includes: First, this way, family members have no reason to believe their salaries are too high or too low; second, it is generally easy to determine the "fair labor market value" of a position through salary surveys; third, if this employee leaves the company, their salary has already been factored into the company's cost structure. Lastly, other family members will not suspect anyone of receiving a salary without working or working less. Other payments and benefits provided by the company to individuals should be based on the number of shares they own.