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One of the most challenging areas to manage within the independently owned supermarket is the compensation paid to individual stakeholders. This is often an emotional topic at family meetings, as many storeowners find it difficult to establish different rates of pay for relatives working in their businesses.
To operate with the utmost integrity and gain the respect of one’s entire staff and management team, however, compensation for most family members must be individualized and determined not only by position within the organization, but also by education, experience, ability, personal time commitment to the company and overall job performance.
According to Dr. John Eldred, who consults with family-owned businesses across the country through his Ambler, Pa.-based company, Transition One Associates, compensation within family businesses is too often designed not to promote competence, but to avoid conflicts.
“Of course, it’s human nature for parents to strive to treat their kids equally,” notes Eldred. “But when it comes to the workplace, not every job is worth the same amount of money, and not every relative contributes equally to the organization in terms of energy and talent.”
What an owner must establish early on in a family business is an architecturally sound pay system. “Owners must have the ability to separate ownership from management,” explains Eldred. “Unfortunately, there are some business owners out there who are either too lazy to figure out what individuals are worth, or they have no guts to confirm the truth.”
Eldred suggests the following food for thought regarding pay systems:
• First, establish written job descriptions and measurable performance goals for each position within your store.
• Pay for performance and determine what each position in the company is worth in your individual marketplace.
• Seek assistance from an outside board of advisers in developing a written pay system. According to Eldred, establishing an advisory board whose members aren’t paid and assume no legal responsibilities, isn’t enough. “Typically,” he says, “those who are paid for their services, which can include attending quarterly review sessions and participating in owner meetings and conferences, view their positions more seriously and can provide more benefit to the organization.”
• Incorporate within the organization a philosophy of “business first.” “Operate the stores as a business in which family members work,” advises Eldred. “Avoid compensation being viewed by siblings as an indication of the amount of love and power that parents bestow upon each child. Pay must be based on quantification, not emotion.”
• Conduct ongoing performance evaluations. Eldred urges that all associates, including family members, must participate in the performance appraisal process. He suggests that parents enlist the help of their board of directors to evaluate individual family members.
“This lends objectivity to the process,” he observes. “Drawing a line between family and business is certainly not easy, but it’s essential in order for both family members and the company to earn respect. It proves to all employees that every associate, whether they are related to the owner or not, must earn their own way in the system.”
Additionally, Eldred believes that by basing pay exclusively on job classification and performance, future leaders have the opportunity to develop efficacy and a true sense of competence — not entitlement.
“At all costs, we must avoid entitlement, a psychological condition in which family members believe that they are owed something by virtue of their last name or relationship to the owner,” he says. “We can accomplish this by continuously focusing on effort and outcome within the organization.”
As an example, he offers: “If a bonus or reward is presented to a son or daughter who hasn’t earned it, credibility is destroyed. Sure, the parents may feel good about giving that bonus, and the child is no doubt happy to accept it, but what the parents/owners don’t realize is that they’re contributing to others in the organization viewing their child as a joke.”
During his years as a respected industry consultant, Eldred says he’s found no issue that causes greater conflict than money. “We have to remember that there’s good conflict and there’s bad. And fair does not always mean equal.”