Reducing Compensation Without Doing More Harm Than Good

There is a nexus between compensation, an individual’s sense of fairness and identity, and a company’s economic vitality. The family enterprise is not immune from needing to walk a delicate path when REDUCING compensation when economic headwinds facing the company warrant it.

The extent to which compensation should go down is company and contextually specific. THE HOW is critical. Remember, each family member will have feelings that are effected and overriding most will be a sense (assuming it is necessary) of whether it is fair. Non-family members too will react, if not overtly, than certainly internally. Perceptions impact how they feel. If non-family members are the first to feel the pinch, their receptivity, their morale, and their resultant productivity will depend on their perception (understanding) of the need and whether they feel what is happening to them is fair. It may be too much to ask that non-family members take a haircut when family member employees don’t feel the same pain. Informing all of those who will be affected with the reasons for the reduction is only part of the equation to successfully walk the delicate path. How everyone feels will be a dominant factor in whether it can be accomplished without doing more harm than good. Communication is the key.

Among the family members, this may be an opportunity to bring compensation into alignment with value to the company for the efforts expended by each effected family member. A compensation sub-committee adjunct to an existing family counsel is a valuable way to set the stage for information sharing, meaningful deliberations and decisions best tailored to the needs of the company, the needs of the family, and the needs of the individuals of that family. The information gathered and shared, the fairness of the decision making process, and the impacted family members having a seat at the table, will enhance the quality of the decision and necessary buy in of those impacted.

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