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Tips to navigate family remuneration in family-owned businesses
31 October 2023 | Minutes to read: 2

Tips to navigate family remuneration in family-owned businesses

By Chris Leahy

Family-owned businesses form the backbone of many economies, and a unique aspect of these businesses is the intersection of personal and professional relationships. This often leads to the question: How does one set remuneration for family members?

Setting a fair and justified salary for family members is essential not only for the wellbeing of the business but also for maintaining harmony within the family. Here are some guidelines to assist in this challenging task:

1. Objectivity is key

Separate personal emotions and biases from professional judgment. Assessing family members as you would any other employee is the first step. Understand their roles, responsibilities and the value they bring to the business. The remuneration package should reflect these elements rather than personal relationships.

2. Market rate as a guideline

Start with a baseline. Research the prevailing market rates for similar roles in your industry and region. There are numerous online tools that can offer insights specific to the market and industry. Ultimately it is about a ‘fair day’s pay for a fair day’s work’ and by aligning family salaries with the industry standard, you minimise the chances of overcompensation or underpayment.

3. Evaluate contributions

Regular performance appraisals aren’t just for corporate environments. Evaluating the contributions of family members can be a touchy subject, but it’s a necessary one. Quantifiable metrics such as sales targets, client retention or project completions can provide a fair basis for setting salaries and bonuses in family-owned businesses.

4. Transparency and open dialogue

Fostering a culture of open dialogue can alleviate many potential conflicts. Be transparent about how remuneration decisions are made. Engage in discussions with family members, ensuring they have a platform to voice their concerns and opinions.

5. Consider the financial health of the business

It’s tempting to offer generous packages to loved ones, but the remuneration strategy should always align with the financial health of the business. A good practice can be to benchmark remuneration against business profits. If the business is thriving, it may be appropriate to offer better packages, and conversely, during lean times, it might require some adjustments.

6. Incorporate non-monetary benefits

While salary is a primary concern, don’t underestimate the value of non-monetary benefits. Flexibility, professional development opportunities and other perks can often hold significant value for family members and can be part of the remuneration strategy.

7. Engage external consultants

Sometimes, an external perspective can provide clarity. Consider engaging a Chartered Accountant familiar with the nuances of family-owned businesses. They can offer an unbiased viewpoint and help establish a framework that is both fair and competitive.

8. Review and revise

The business landscape is dynamic, and roles within a family business may evolve. Just like with any other employee, it is important to regularly review remuneration structures to ensure they remain aligned with individual contributions and market rates.

Setting family remuneration is a delicate balance of maintaining business viability and preserving familial relationships. By adopting a systematic, transparent, and market-oriented approach, family-owned businesses can ensure that remuneration is not just a financial decision but a tool for business growth and family cohesion.

For assistance with any element of your family business strategy, contact your local William Buck Business Advisor in Australia or New Zealand.

Tips to navigate family remuneration in family-owned businesses

Chris Leahy

Chris is a Director in our Business Advisory Division with over 16 years experience within the accounting and finance industry working with business owners. Chris has a unique blend of commercial and professional experience seeing him lead the financial functions of privately owned international companies across five continents as CFO and Statutory Director.

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