Family Business Compensation: Three Critical Challenges That Cost You Top Talent
- Erin McNulty
- 7 minutes ago
- 4 min read
Family businesses facing executive transitions often discover their planned compensation isn't competitive with market realities. The natural response is to purchase a comprehensive compensation study, expecting clarity on competitive pay rates.
Instead, families find themselves staring at spreadsheets that don't reflect their reality - data pulled from public companies, job descriptions that only vaguely resemble their actual needs, and recommendations that ignore the unique dynamics of family enterprise.
Below, we outline three recurring challenges that consistently undermine family businesses’ ability to attract and retain top talent, along with their solutions.
Challenge #1: Why Compensation Studies Fail Private and Family-Owned Companies
Most compensation databases are built for public companies and venture-backed firms. The data reflects organizations with quarterly earnings pressure, short executive tenures, and equity-heavy compensation models.
Private and family company compensation data is sparse and often misleading. Databases assume uniform responsibilities across organizations, but a CFO at one family business may have vastly different duties than a CFO at another.
How Job Titles Distort Family Business Compensation Benchmarking
An Executive Vice President at one organization might be a seasoned professional with decades of experience. At another, it's a promising but inexperienced person with a vanity title. Family business employees often wear multiple hats and assume duties that fall far outside their formal job descriptions.
Traditional compensation studies can't capture these variations. They operate by plugging job titles, industry, company size, and location into algorithms that generate salary ranges. This numbers-in, numbers-out approach fails to account for the actual responsibilities and value someone brings to your organization.
Why Public Company Salary Data Doesn't Apply to Family Businesses
Because public company data is more readily available, compensation studies skew heavily toward these organizations. Family businesses struggle to understand how the comparatively high salaries and equity-heavy policies of public companies align with their business realities and operational needs.
No single compensation dataset accurately reflects the private and family company market. At Stranberg, we aggregate multiple data sources to create more reliable, market-accurate views adjusted for size, complexity, and ownership structure.
The goal isn't to mimic public company pay. It's to create compensation that's competitive, credible, and sustainable for your specific situation.
Challenge #2: Aligning Executive Compensation with Family Business Values
Walk into most family businesses and you'll see value statements displayed prominently - in the foyer, in every office, even behind webcams during video calls. They list principles like stewardship, accountability, integrity, and teamwork.
But when you examine hiring practices, employee communications, meeting management, and day-to-day operations, those core values often remain just words on a wall. They look good. They sound good. But they don't actually drive how the business operates.
This disconnect misses a huge opportunity in building culture and ensuring the people you bring into your company align with ownership values.
What Happens When Family Business Compensation Ignores Company Values
It's one thing to say you value accountability. It's something else entirely when your employees are truly accountable for their performance and outcomes. That missing link between stated values and actual practices creates confusion about what the family really cares about.
Family businesses operate differently than public or private equity-backed firms. Most compensation advisory models are built for those environments, not for organizations where values like community loyalty, multigenerational stewardship, and patient capital drive decision-making.
When compensation practices don't reinforce family values, you create conditions where new executives optimize for metrics that conflict with what ownership actually cares about. An executive compensated purely on EBITDA growth will rationally propose moves that maximize profitability - even if those decisions undermine community relationships or family priorities.
How to Structure Family Business Compensation That Rewards Both Performance and Values
Effective family business compensation is a strategic issue, not just a payroll exercise. It separates employment compensation from ownership returns, protects family relationships through clarity and consistency, and ensures that what you reward actually reflects what you value.
Challenge #3: Legacy Compensation Practices That Drive Away Modern Executives
The ideal situation is transparent alignment between org charts, position descriptions, and compensation. Someone joining your organization should understand their job responsibilities, requirements, and compensation clearly.
What we find instead: legacy compensation practices built on loyalty, tenure, and handshake agreements. Position descriptions that haven't been updated in years. Bonus structures that create more confusion than motivation.
Why Discretionary Bonuses Fail in Family Business Executive Compensation
Family businesses often maintain "discretionary bonus" policies. To prospective employees, this translates as: ownership sits in a back room debating which employees they like best, then distributes bonuses arbitrarily.
Because it's discretionary and lacks transparency, it creates negative cultural dynamics. Employees have no line of sight into how their performance connects to rewards.
Modern practice provides clear connections between performance and compensation. Consider sales roles - salespeople typically have low base salaries but uncapped variable compensation. They know exactly what they earn with each sale. Their performance directly ties to compensation in a transparent, predictable way.
The challenge for family businesses is extending this principle beyond revenue-generating roles. How do you connect accounting, HR, operations, or manufacturing positions to performance-based compensation in ways employees understand?
How Long-Tenured Employees Create Family Business Compensation Problems
Family businesses pride themselves on employee loyalty and long tenures. But this strength creates a dangerous blind spot: executives who joined decades ago rarely see their packages properly adjusted over time.
This creates false perceptions of market rates that become problematic when retirement triggers replacement needs, business growth demands new talent, or external audits reveal significant compensation disparities.
When you eventually bring in properly-compensated executives, it either forces costly adjustments across your existing team or triggers departures of valuable people who discover they've been underpaid for years.
How to Build Effective Family Business Compensation Systems
These three challenges - inaccurate data, values disconnection, and outdated structures - consistently undermine family businesses' ability to compete for top talent.
The solution requires moving beyond transactional approaches to compensation. It means aggregating accurate market data adjusted for family business realities, explicitly connecting compensation to both financial performance and family values, and updating legacy practices to reflect modern talent market expectations.
This creates compensation systems that attract strong executives, reduce conflict among team members and family, align ownership and leadership around shared goals, and support succession and long-term value creation.
Compensation stops being a recurring source of tension and becomes a stabilizing force.
Ready to discuss your compensation strategy? Contact Stranberg to learn how we can help you create frameworks that attract top talent while preserving family control and values.
