Should you bring home more bacon?
3/23/2004

You deserve to be rewarded for all the sweat and tears you put into building your family business but, at the same time, you must also share its success with your co-owners and family employees. Let’s not forget about nonfamily workers who may leave if they don’t get a healthy slice of the pie, too. On top of this, you must consider how much your business can realistically afford to pay. After all, you don’t want to starve it by hogging too much for yourself.

What’s typical?
For CEOs of publicly held companies, compensation packages generally include salary, bonuses, stock and retirement plan benefits. To motivate CEOs and help them keep shareholders’ interests in mind, many companies offer stock options. Unlike their counterparts, family business owners have likely invested nearly every penny into building and growing their companies, so they already own a majority interest %97 their incentive to keep control of their businesses in their families.

Many family business CEOs also draw salaries comparable to what CEOs of public companies receive %97 sometimes even larger. If you are in this group, reassess whether your compensation package supports your long-term business goals. You may be inadvertently sacrificing bigger gains over the long run for short-lived financial gains. By taking money as compensation that you should be putting into the company, you may stunt growth and weaken your balance sheet.

What’s more sensible?
Although it may be difficult, applying a more objective approach will help you achieve your business goals, meet your personal needs and earn your employees’ respect. Here are a few areas to consider when determining your compensation:

Job qualifications. Define the ideal set of qualifications and experience needed to perform your job, using industry surveys and your managers’ and board members’ expertise. To determine whether you should give yourself a raise, assess your current worth by how well you currently fill these requirements and whether you could stand to further develop your skills and gain more experience.

Performance. You may want to tie your compensation to how well you meet your personal business objectives and your company’s performance.

Market value. To justify your salary, see what your industry counterparts are making. Although compensation levels will vary, your salary and benefits should be comparable in overall value to compensation packages for CEOs managing businesses of similar size, revenues and maturity level in your geographic region and industry.

Internal support. Find out how your co-owners, executive managers and board members feel about your compensation package. If they think it is egregious or inconsistent with the rest of your organization, resentment and poor morale may result. This can lead to costly productivity and retention problems, which could ultimately leave you with a smaller paycheck and damage your credibility as a fair leader.

Hungry for more advice?
Balancing your immediate income needs with long-term financial goals can be difficult, even triggering familial business disputes. For help preventing arguments over your compensation while creating a package that sizzles, consult a professional tax advisor or family business professional.

Sidebar: When should you transfer your ownership?
At some point, you will need to start diversifying your investments for retirement. Why? Similarly to Enron Corp. workers who had their 401(k) plan assets invested in their employer’s stock, you could deplete your nest egg if you leave all your assets in your family business.

Determining how much to put into your company depends largely on your business’s stage of growth and capital needs, and your own stage of life. You may realize significant estate tax savings by gradually transferring stock ownership %97 likely the largest asset in your estate %97 to the next generation well before your retirement date.

(The previous article was general in nature, and we recommend any reader consult with their tax advisor as to the specific application of this information to their particular facts and circumstances. This article is based authorities which are subject to change, and accordingly, should not be relied upon. Any tax advice included in this article was not intended or written to be used, and it cannot be used by the taxpayer, for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency)

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