Soriano: Giving your children equal compensation is wrong

Soriano: Giving your children equal compensation is wrong

There is no “one size fits all” solution to a family business with some degree of conflict. A father will favor the eldest child just like a mother favors one offspring over another. On the other hand, a sister manifests dislike against another sibling while in-laws think their spouses are overworked and underpaid. Conflict is normal in family businesses but the unresolved ones that are classified as excessive are clearly creating damage and instability. When the family is not able to deal with it constructively, danger kicks in and opens a prolific source of deep-seated problems, like a pandora’s box.

Embracing conflict as a natural event will ease the burden of trying to avoid it. Of the myriad of conflicts facing family-owning businesses, one of the most pervasive (and very troubling) issues is how to come up with the right compensation package for family members working in the business. It’s not just about the money or the position; there’s much more involved. To parents/owners/operators, I want to raise a challenge: When you see some of your children working long hours while others work less or don’t work at all, would you consider it fair to give all of them equal compensation?

A family I was helping was not exempt from this problem. The conflict between the eldest sister, Rina, 38, and her brother Rey, 34, surfaced when one after the other joined the family business. When the founder asked for my help, I took the position that their salaries should be based on two fundamental criteria: First, the assigned tasks, and titles they were occupying including their scope of work, and second, their job performance. Rina felt that she should have a higher salary because she has been employed longer and therefore had seniority. On the other hand, Rey felt that they should have the same salaries and benefits since their divisions complement one another. Without expressing it, I sense that he was conveying the message that since he was the male offspring, it was expected that he would be assuming the role of a successor.

As a seasoned executive occupying several CEO positions in the ‘90s and early 2000s and currently as a member of several family boards in Asia advising RC Coms (Remuneration and Compensation committee), I held on to my point of view by challenging the siblings to defend and justify their salaries on the basis of their job performance. Was the compensation given to them by their father based on their own merit or was it because their last name was their birthright? Were the additional allowances they received exclusive to them by being blood and primarily because they have growing families already? Do they really deserve what they are receiving? Are they not embarrassed that their compensation package has become a demotivating force and a real dampener for many deserving non-family executives with some showing signs of disgust and threatening to resign?

The two siblings were stunned. They did not know how to respond to my questions. Even the father (the most guilty) was quiet and showed discomfort but was shaking his head struggling to find the right answers. I reinforced my questions by asserting that in formulating compensation standards, certain metrics must be factored into the equation. I then reiterated that a specialist must be invited to craft a compensation plan linked to the children’s (and non-family executives’) qualifications and career path.

The best antidote for managing conflict among siblings is to set documented boundaries upon their entry into the family business. Our W+B governance model revolves around these five R’s: Rules, Roles, Rights, Responsibilities and Real Accountability. “With science, objectivity will always prevail over emotions.”

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