July / August Y2K
Preserving Peace
In a Family-Owned Business
Daniel Chabbott, president and founder of J. M. Cabot Inc. in Manhattan, a jewelry manufacturer, employs two sons in the family business.
Julius, 23, who started as a production assistant two years ago, is now vice president in charge of production and sales. Morris, 17, a junior in high school, is a part-timer and attends trade shows. He loves talking to customers and has shown an early aptitude for sales. After high school, he’s expected to join the company, too.
As a parent, though, how does Chabbott decide what is fair compensation for each son? How does any family business owner preserve the peace after his children join the company and start picking up paychecks?
Here are some tips from the experts.
• Write up job descriptions and include a salary. Call a trade association, a competitor or a compensation expert and ask what comparable positions pay, suggests Arthur Levy, chairman of the Family Business Council of Greater New York. “We can direct them to consultants in various industries,” he says.
• Establish a compensation policy. Call a family meeting and say, “ ‘I want everybody to understand that our approach to paying people is we pay according to what we think the value of their job is and how well they do,’ ” advises Ross W. Nager, executive director of the Arthur Andersen Center for Family Business in Houston. “The same is true for non-family members. If one of you works harder and better, that one is, over time, going to be compensated better. That is true of any business and it’s going to be true in ours.”
• Start inexperienced ones at entry level. “One has to work his way up and prove himself,” says Chabbott. “Then you can compensate him more because he’s making money for the business.” Start him at a basic salary in a job that exposes him to every nut and bolt of the business. Once he has worked his way up, he’ll know what he’s selling, why it’s priced that way and how long it takes to produce.
• Pay children what the job is worth. “File clerks don’t make six figures and don’t have perks and cars,” says Levy. Also, forget trying to pay equal salaries because you love them equally, warns Nager, who co-authored The Family Business Answer Book (Prentice Hall Press). “In the long run, it can cause severe problems.” Don’t base salaries on personal circumstances. Children make their own choices in life.
• Compensate family members and non-family workers alike. “If you want to maintain good morale in the company, people should be paid for the position they hold and the job they do,” not because they’re family members, says Leo Rogers, director of Fairleigh Dickinson University’s Family Business Forum in Madison, NJ. “There are other ways of compensating family members,” such as giving them cash or stock.
• Set guidelines for performance reviews. Discuss your goals and objectives, advises Nager. Periodically meet and discuss whether your children or siblings have met, failed to meet or exceeded them. Adjust their compensation accordingly. But don’t make the mistake of, say, giving a chintzy pay raise because they didn’t meet expectations—if you never discussed those expectations in advance.
• Offer performance incentives. Apart from base salaries, offer them and all workers, incentives to work harder for the company: bonuses, sales commissions, cash for producing extra widgets.
• Place the children under a non-parent supervisor. A relative or a non-family member probably can coax a better performance from your youngsters and objectively assess whether they deserve a promotion, pay raise or need more training, notes Chabbott. They may not work as hard under a soft-hearted parent.
A son or daughter in the family business, if treated properly and compensated fairly, “will give more than you expected because they’ll want to prove they’re capable and worthy,” says Chabbott.
Write to Iris Taylor at P.O. Box 747, Powhatan, Va., 23139. E-mail her at ILTaylor@aol.com
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