* The Succession Institute, LLC is not a CPA Firm

Family Business Performance-Based Pay

Posted: October 2, 2007 at 9:36 am   /   by   /   comments (0)

Accountability leads to accomplishability. Accountability is a simple concept under which people are held responsible for their work, but few family businesses implement accountability effectively, especially when it comes to accountability of family members.

Real systems of accountability are fundamental to any successful business operation. Accountability attempts to eliminate the subjectivity of evaluating employee performance.  The only way employees can “rest easy” about what they actually accomplish is by knowing exactly what is expected of them, knowing that a system is in place to measure that performance, and that the system is objective and fair.  Accountability is central to not only motivating the workforce, but also to giving them a sense of satisfaction about their accomplishments. A real system of accountability has elements that ensure employees:

  • Receive wages and benefits in line with those of their peers;
  • Have challenging jobs;
  • Know exactly what is expected of them;
  • Are held accountable, as much as possible, to non-subjective measurements;
  • Receive adequate training;
  • Learn on the job; and
  • Are rewarded for over-achievement.

Most family business owners and managers, when surveyed, rank money as #1 in a list of the top ten motivators of employees. Employees, however, usually rank money seventh or eighth.  What do employees usually rank first, second, or third? Their choices, paraphrased, are “Feeling good about the work they perform,” “Feeling like their work makes a difference,” or “Feeling like they did a good day’s work.”

So, how can management be so wrong about something so important?  It’s easy. The reality is that we don’t pay much attention to the people who work for us. To most family business owners and managers, managing (dealing with employees) is an inconvenient, low-reward function. Therefore, we rarely communicate our expectations adequately. With even less frequency do we ever implement systems of accountability. Instead, we establish negative and stifling work environments, and then we typically punish the innocent and reward our friends.

In our work with family businesses, we spend time helping them devise systems (whether it is for the owners and/or the employees) so that a large part of everyone’s pay is based on objective pay-for-performance metrics. Objective metrics without subjective ones can have negative consequences as well. So, in our opinion, every compensation system has to have a balance. While it is absolutely critical for our people to be evaluated against known, objective criteria, we don’t want to create an environment that is cut-throat or a hostile work place. So, we always have to build in the softer subjective metrics that deal with attitude, teamwork, doing the right thing, even though it was not part of your job responsibilities, etc.