How should family members who work in the business be paid, promoted and held accountable?

How Family Members Who Work in the Business Should Be Paid, Promoted, and Held Accountable

1. I believe family members should be treated with fairness - not favoritism

One of the hardest challenges in a family business is balancing two things that are both important:

The family member working in the company should not be punished because they are family.

But they also should not receive special treatment simply because of their last name.

The standard should be clear before emotions get involved.

"Many times, family members may make assumption on what the rules of the game are when working in the family business or spending the family's money - but often those are not the rules the wealth creators believed were understood."

This is why I believe governance rules should be created early, when everyone is aligned, rather than during a conflict.

2. Require family members to earn credibility before joining

One of the best ways to avoid resentment from employees is making sure family members build experience before entering leadership roles.

If a son or daughter walks into the company and immediately receives authority, the team may think:

"They got the role because of their last name."

That creates problems.

A better approach is requiring outside experience, education, or demonstrated ability.

"One rule may be that family members must earn a 4-year degree first and/or work at least 2 or X number of years at another company before joining the family business."

"Some families require 7 or 10 years elsewhere before joining the family business, this way by the time they join they have legitimate experience and they aren't seen by the team as being put into place just because of their last name and they bring fresh ideas and perspectives to the table."

The goal is not to keep family members out.

The goal is to make sure they enter prepared.

3. Compensation should be decided by policy, not emotion

Compensation is one of the biggest sources of family business tension.

Questions that should be answered upfront:

The answer can vary by family.

The mistake is having no answer.

"Compensation is something that also should be decided upfront, Will family members or spouses or offspring of family members be paid market wages, double market wages, will others on the team know they are being paid more?"

"Who decides if their experience is as high quality as the other person who is not a family member who is being considered and if there is a past friendship or relationship with someone in the family, how does that change the decision of compensation, or who gets hired or fired?"

When these decisions are not clear, every compensation conversation becomes personal.

When they are clear, everyone understands the rules.

4. Promotions should be based on contribution and capability

A family member should not automatically become CEO because they are the founder's child.

Leadership should be earned.

I would ask:

A strong family business creates opportunities for family members, but it does not guarantee outcomes.

5. Hiring family friends and relatives requires extra discipline

Another common mistake is allowing family relationships to override business judgment.

For example, a next-generation family member might hire:

The intention may be good.

But businesses need professional hiring processes.

"If a new family business team member is needed and a son hiring an old roommate from school he may be making a wise pick, or just wanting to work with a friend and that could harm the business."

"If that friend ends up embezzling money it can not only lead to wealth loss, but now the son may be alienated from the family, when he was only trying to help out a friend."

The lesson:

Good intentions do not replace good processes.

6. Hold family members accountable with the same standards as everyone else

One of the biggest mistakes family businesses make is having two different rulebooks:

That creates resentment.

The strongest family businesses use:

"Key Performance Indicators (KPIs): Everyone from the CEO and CIO down to the analyst and associate should be judged by objective Key Performance Indicators."

"KPIs help management and team members that want to self-manage, evaluate their ability to meet goals, and uphold standards, and they allow for objective comparison of team members, which can be helpful when some happen to be family members while others working in the family office are not."

7. Use governance meetings to keep expectations aligned

Many family conflicts happen because people silently develop different expectations.

The founder thinks:

"My child understands what I expect."

The child thinks:

"I thought I was supposed to take over."

The employee thinks:

"They are only here because they are family."

Regular family meetings help eliminate those assumptions.

"Most families that have moved past the first generation (the wealth creators) try to hold annual or quarterly meetings whereas many family members as possible get together to discuss the family business, family investments, priorities, and latest challenges."

"Through these meetings, the next generation becomes aware of the responsibilities and hard work that are required of families maintaining significant wealth."

8. Protect the business with controls - even with family members

Trust is important.

But systems protect relationships.

As families grow, there should be clear controls around:

These rules should apply whether someone is family or not.

"Typically, no single employee-whether they are a family member or not-should have the ability to withdraw large sums of money from the business, and if someone is allowed that privilege, it should only be after receiving approval for that movement of funds."

My Framework for Family Employment Rules

If I were helping a family business design this today, I would create:

Entry Rules

Compensation Rules

Promotion Rules

Accountability Rules

Governance Rules

Final Thought

The healthiest family businesses do not choose between family and excellence.

They create systems where family members can contribute while still respecting professional standards.

The goal is not to make the next generation prove themselves because they are family.

The goal is to make sure they earn the respect of everyone around them because they are capable.

The playbook for this

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