Remuneration: Strategies that ensure fairness in family- owned business

One of the most complex and sensitive issues family enterprises face is the remuneration of family members. Ensuring that compensation is fair and effective requires a nuanced approach that balances familial aspirations with the financial and operational sustainability of the business.

Remuneration in a family business is not just a matter of paying a salary; it reflects the values and goals of the family and the enterprise.

To maintain harmony, remuneration practices must align with the long-term vision of the business and the principles of fairness and meritocracy. Compensation should be tied to individual contributions rather than familial ties.

By and large, when remuneration becomes a reward for performance rather than an entitlement, it motivates family members to contribute meaningfully to the success of the enterprise. Linking incentives to measurable performance metrics strengthens commitment and fosters a sense of achievement and recognition, thereby reinforcing loyalty and dedication.

There is also the consideration of how key non-family executives feel if remuneration principles are not democratic. This can be a significant demotivating factor impacting performance and productivity.

Another critical aspect of remuneration in family businesses is ensuring equality and transparency. Family members should be evaluated on the same terms as non-family employees, with compensation reflecting their skills, experience and contributions. This merit-based approach prevents perceptions of favoritism or nepotism, which can lead to resentment and conflict.

Treating family members as equal contributors promotes a culture of professionalism and mutual respect, enhancing business credibility and stakeholder morale.

Open and transparent communication is indispensable in resolving potential conflicts around remuneration. Compensation decisions should be clearly articulated and supported by objective criteria. Regularly revisiting remuneration policies ensures they are aligned with the evolving needs of the business, the relevant industry and its members.

When family members understand the rationale behind remuneration decisions, it fosters trust and minimises misunderstandings. This ethos of transparency also instils a sense of flexibility, which is crucial in adapting to changing circumstances.

For example, should a family member working in the family’s FMCG business be remunerated on the same terms as a family member working in the family’s private equity arm where each of their responsibilities differs?

The issue of succession further complicates the remuneration landscape. As leadership and ownership transition to the next generation, compensation structures must reflect the gradual transfer of responsibilities. This process ensures that successors are not only fairly compensated for their contributions but are also prepared for their new roles.

By aligning remuneration with the evolving responsibilities of successors, family businesses can instill confidence and a sense of accountability in future leaders, while preserving the values and goals that define the enterprise.

The writer is Senior Partner, ALN Kenya|Anjarwalla & Khanna