Barbara Weltman.com

J.K. Lasser’s Finance and Tax for your family business

"The Family Bible for family business, large and small For many family business owners the most daunting issues aren't how to serve customers or make sales - they're how to handle the often complicated legal and tax issues involved in running a successful business. From business plan to intergenerational succession, J.K. Lasser's Finance and Tax for your family Business offers all the relevant tax and legal aspects of starting, running and transferring a company. It provides an invaluable understanding of organizational structures, capital-formation alternatives, and compensation obligations and choices. Also included is a resource listing of family business institutes, centers, and Web sites."

Establishing Compensation Policies.

Setting compensation for relatives and non-family members is certainly a difficult task. However, if the business sets compensation policies, it becomes a little easier. Determining compensation policies in advance allows family members to have an opportunity to offer their opinions on what those policies should be.

Here are some suggestions for compensation policies to be used in family businesses to create an atmosphere of fairness for all conerned.

• Pay the job not the person. Set the compensation based on the job requirements, not on who is filling the position. This will ensure that outsiders receive the same compensation if they do the same work as family members.
• Be competetive. The compensation paid for your company's jobs must measure up to what's being paid by other companies in your industry. This is the only way to attract and keep good employees an especially critical consideration in today's tight job market.
• Pay what the busness can afford. How many mouths can on company feed? This is a hard question for some family business owners to answer. When pop started the hardware store on the corner, his compensation fed his immediate family - mom and two young sons. When the store expanded and the two grown boys - each with a wife and two children of his own - joined the business, the mouths to feed now included the boys' families. The same business that used to feed four people is now being asked to feed 10 people. Can it be done? Obviously, the answer depends on the individual company.
• Do performance reviews. Hold family members to the same performance reviews as outsiders. Criticism should be objective, and relatives should face the same consequesnces as nonfamily members, including demotion, no pay raise, or even termination. It's difficult for a relative to judge the performance of another relative, but, as a matter of policy, it provides a framework in which a family business can function. Obviously, there's an added degree of tact needed when reviewing a relative's performance. It may be easier to have the review performed by a manager or even an outside adviser wo is not related.
• Review compensation by the board of directors. In fixing pay packages for top employees, have them reviewed and agreed to by the board of directors. This is especially helpful where there are outside directors who are completely objective and devoid of family involvement.

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