Money Talks

The delicate art of discussing pay with a relative

By Timothy G. Habbershon

A recent phone call from a former student reminded me of the difficulty families often face in discussing compensation. The student's mother, president of the family's $25 million food company, had asked her son to take the company's head sales position. But she planned to pay him only half of what the previous person had been making. Her rationale was that her son was too young to make that much money. He pointed out that he would be doing the same job as the previous sales manager. He said that if he was not qualified, she should hire someone else. They're at an impasse.

I teach a class on leadership in family firms, and when I asked my students their opinions about this situation, the responses were all over the map. Some said the business should pay what the market dictates, while others thought the son should support the family regardless -- that is, accept the job at the offered salary.

What was most telling, however, was that the students didn't feel they could comfortably have a conversation about compensation with their own parents. When I pressed a number of the seniors who were planning to join their family businesses after graduation, they had no idea what their pay might be or what it would be based on. They also didn't know if they would have a say in their compensation, who would make the final decision concerning it, or what their advancement opportunities might look like.

I know compensation is a "loaded" issue, but that is exactly the point: It is loaded with opportunity for family members to have an important dialogue. Compensation conversations can unpack and explore many of the professional and relational issues critical to the long-run health of families and businesses. Avoiding these issues only allows them to fester until they are even harder to talk about, or until they surface unexpectedly in the midst of conflict.

There are a number of instances when a conversation about pay can be used as a means to explore other issues. When a son or daughter is entering the business, it is a natural time to discuss compensation. But the talk shouldn't focus only on pay. Instead, compensation can be the lead-in for a conversation about professional expectations, opportunities for advancement, and how the son or daughter will be viewed in the business. Similarly, when a family member is taking a new position, a conversation that begins with compensation should progress naturally to a review of past goals and performance. Ideally, the parties will be able to map out a path for future success. And when there is disagreement about which family members should receive bonuses, have access to company perks, or take money out of the business, it is a perfect time to have a family meeting to distinguish between business and family compensation.

Of course, a conversation about compensation -- and the important issues surrounding it -- needs to follow some of the same ground rules as any other productive dialogue. The older generation needs to avoid a parental approach and to hear the views of all family members. It's also crucial not to blur the lines between employer and parent: If you're the parent, acknowledge both roles, and be willing to talk about both perspectives. Above all, don't avoid compensation conversations. Step toward them as important business and family conversation about the future.

Timothy G. Habbershon is the director of the Institute for Family Enterprising at the Arthur M. Blank Center for Entrepreneurship, Babson College

    Before it's here, it's on the Bloomberg Terminal.