Family businesses present a unique combination of business challenges and family dynamics. The emotional bond between family members can be both a strength and a source of conflict. One of the most sensitive issues is often the compensation policy within the company. A clear policy is essential not only for day-to-day operations, but also for a smooth transfer to the next generation.
Why good compensation policies are crucial
Many family businesses grow organically. Children often step in informally while the first generation is still at the helm. As a result, it is not uncommon for the compensation of family members not to be market-based. This may not seem like a problem in the short term, but often leads to tensions in a future transfer.
For example, a family member who worked for years underpaid may feel that he or she has to pay for the value created by themselves. This can cause resentment in both a sale and a gift of shares.
The solution: a transparent compensation policy
A clear and fair compensation policy ensures that every employee - family or not - knows where he or she stands. This can prevent later misunderstandings or conflicts.
- Family charter: This document constitutes a constitution for the family business. It contains agreements on remuneration, joining and transfer of shares, and provides a framework for resolving conflicts. The strength of the charter lies not only in its content, but also in the process of its creation, which involves open discussions with all stakeholders.
- Elaborated compensation policy: In addition to the charter, detailed policies are essential. This can include variable and fixed compensation, as well as benefits such as a cafeteria plan, company cars, and bonus plans. These policies should be applied consistently throughout the organization.
- Independent remuneration committee: A third party can provide an objective evaluation of performance and application of compensation policies. This avoids the impression that family relationships outweigh professional criteria.
Long-term benefits
A transparent remuneration policy not only provides clarity, but also strengthens trust within the family and the organization. It reduces the risk of conflict, ensures a fair distribution of resources, and prepares the family business for a sustainable transfer to the next generation.
Conclusion
Remuneration that is in line with the market and objective is the basis for a healthy family business. By laying down clear agreements in a family charter and implementing a detailed remuneration policy, you not only ensure peace of mind within the company, but also build a solid foundation for the future.
Want to learn more about how to set up an effective compensation policy or guidance on drafting a family charter? Listen to our podcast or contact our experts. We will be happy to help you.
