The Family Business Compensation Conversation You’re Avoiding Will Actually Ease Tension When Approached Correctly, Not Create It

A discussion with Bill Stranberg, Stranberg, and Davon Cook, Pinion

In family businesses, compensation is often the topic everyone avoids for fear it will spark conflict among family members and employees. In practice, the opposite is usually true. Getting clear about how and why people are paid usually relieves pressure rather than creating it. The families that struggle are the ones operating without a policy.

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Bill Stranberg of Stranberg and Davon Cook of Pinion advise family enterprises from two different seats. Bill works on executive search and succession. Davon advises family businesses in the food, agriculture, and manufacturing sectors on governance and the transitions that accompany growth. Across both practices, one pattern holds: compensation feels like the third rail of the family business, and avoiding it does more damage than addressing it.

“Talking about compensation in a family company can oftentimes be a conversation that’s sidelined for fear that it will be difficult or raise conflict and cause dissension amongst family members and employees,” Bill says. “When in reality, having those conversations can actually ease the path forward and ease tensions amongst all parties involved.”

That through line, the dreaded conversation is usually a pressure-release valve, runs across every compensation question a growing family business faces. Here is how Bill and Davon work through the most common ones.

Four ways family members in a family business get paid, and why naming them matters.

Davon starts with the three circles of family business: owner, manager, and family member. In a small company, those circles overlap almost completely. “When you’re in that mindset, it doesn’t really matter where the money’s coming from,” Davon says. “It’s the same pot.” As a business grows and professionalizes, the circles separate. Key managers appear who are not owners, and owners appear who are not in management.

To keep the money straight, Davon points to a framework credited to Kim Schneider Malik, four ways people get paid in a family business:

• For what you do — the job itself, the salary. 

• For how well you do it — a performance bonus, an incentive, or profit sharing. 

• For what you own — the return on invested capital, the distribution from the S corp or LLC. 

• For who you are — the perks: access to a house or the family vacation, an eventual inheritance, annual gifting from generous parents.

“The more that you can be clear on the distinctions between those four buckets and just acknowledge them for what they are,” Davon says, “the better that serves you long term.”

In a family business, a double standard in employment pay damages your culture.

Bill’s addition is where the textbook meets the operating company. The clean four buckets tend to collapse into a double standard: a family member and a non-family employee hold the same job with the same responsibilities, but the family member’s base salary sits well above the market rate for the role. “That double standard is meant for owner comp and employment comp,” Bill says, and it bleeds into other employment policies as well.

The people who feel it most are the non-family executives Stranberg is usually hired to place. “When you have people doing the same work for different levels of pay and different levels of accountability, it is discouraging to the people in the workplace,” Bill says. Families are often unaware of the effect it has on the culture around them.

The fix is to set employment compensation at the market rate for everyone in a given role, family or not. If a family member receives more, route the additional value through a different bucket, like a family perk funded by a clearly separate revenue allocation, so the culture still reads as fair. 

Davon agrees and adds a pragmatist’s caveat: sometimes families do decide that family members get an extra week of vacation for attending the family council meeting and the reunion. That can be defensible. The key is to do it, in Davon’s words, “in the light of day,” with a stated process and rationale, captured on a total compensation worksheet so everyone appreciates what they are actually receiving.

Running expenses through the business: do it in the light of day.

The second thorny area is tax. Profits are taxed at a higher rate, so owners look for legitimate business expenses to reduce their tax bill. “I can lecture my clients all day about the best practice of separating ownership and management compensation,” Davon says, “but the reality is they have a huge tax incentive to not do so.” Vehicles, homes, healthcare premiums, and more. All of it can be legitimate in the eyes of the IRS. “It starts out very innocuous. But sometimes it sets you up for conflict down the road.”

Davon’s guardrails are policies. Earmark a set share of profit each year to a housing fund for each person, so one family member’s fifty-thousand-dollar remodel does not become the next family member’s grievance. Put a policy around how often vehicles are replaced and at what level. Record every one of those benefits on a total compensation worksheet, so no one feels undercompensated when the numbers say otherwise. “Do it with some process and transparency,” Davon says, “so that everybody perceives it as fair and appreciates what they’re getting.”

Bill’s warning is about what happens when there is no policy at all. Family employees begin treating company revenue as personal money, going to the CFO or controller for expenses without oversight. One founder’s habit becomes the habit of five adult children, none of them comparing notes. Now a non-family finance leader is caught: no policy to point to, direct knowledge of what each family member is expensing, and their own job to protect. “Whom do you report that to?” Bill asks. As Davon notes, it can even create a legal compliance exposure for that employee. The problem, Bill says, is rarely the intent. “In most cases, people are coming with good intentions to treat their people with fairness. The issue is the transparency, not the behavior.”

Underpaying yourself can become a hiring problem in a family business.

The opposite distortion is just as common: the owner-operator who pays themselves below market. “I don’t need much money. I’m going to reinvest that money back in the business.” So the CEO of a hundred-million-dollar company takes a hundred-thousand-dollar salary. It works until the family needs to hire, because the market rate for that seat is a multiple of what the principal pays themselves, and the outside recruit will not accept the founder’s number.

It compounds from there. A family that never benchmarked its principal usually never benchmarked anyone, and with low turnover, the compensation data can be a decade old. “You’re on this slow glide to a problem that’s compounding,” Davon says. Bill sees the same thing from the search side: the sticker shock at market is real, and it lands hardest on the families least prepared for it.

Compensation and decision rights are the same conversation.

For non-family executives, Bill notes, direct equity is usually the wrong tool. Phantom stock or profit sharing tends to fit better. But strong talent still expects some form of long-term incentive, and when there isn’t one, the family has to close the gap with base and annual incentive. That is a compromise, and it does not always sit well.

The trap Bill sees most often is the discretionary bonus. The owner will not commit a number on paper because the new hire is “unproven,” which feels like prudence from the owner’s chair. To the executive, it reads very differently. “What you’re really saying gets translated as: I don’t trust you,” Bill says. “And I don’t want to get legally tied to someone I don’t trust.” Even a small change in language helps, “up to X percent of base” lands far better than the word “discretionary.”

Underneath all of it is governance. If you don’t trust someone enough to commit their pay, Bill says, the real question is decision rights. A base of, say, $350,000 implies wide autonomy. You are paying that person to make decisions on the business’s behalf as a fiduciary employee. Pay it and then withhold the authority, and you have overpaid for the wrong thing. 

Why compensation in family business should be the last thing you discuss.

Both advisors land in the same place: pay is the last conversation, not the first. “First you need to figure out what the job is,” Bill says, which runs counter to the executive search instinct to open with title and compensation. Most first attempts at a non-family executive fail, Davon notes, “because there is no clarity on what the role actually is and what their decision rights are or are not.”

Davon runs owners through real scenarios as a gut check. Are you okay with this person letting a 20-year employee go for a good, rational reason? If they coach a family member who isn’t performing? If they close a business line or switch a significant vendor? The point is to make it concrete enough that the owner has to be honest with themselves about the authority they are actually willing to hand over.

And the clarity has to start with the owner, not the hire. Bill’s test: ask a founder-CEO for a valid position description of their own role. “Never has anyone ever been able to procure one for me that was valid.” Davon’s practical fix for a company with no systems is a calendar of duties. “For three months, write down what you do weekly, monthly, quarterly, and build it from the ground up.” It doubles as the beginning of standard operating procedures and a succession plan, and it beats a generic bullet list pulled off ChatGPT that says nothing about how the business actually runs.

What one family business CFO search revealed about clarity.

Bill tells the story that ties the whole conversation together. A business of roughly $90M in annual revenue, in a major metropolitan city where cost of living matters. The internal CFO, hired in the mid-1980s as a cost accountant, grown over decades into a do-whatever-needs-doing role, is retiring. Asked what he had in mind for the replacement, the owner said a starting salary of $85,000. In that market, that is a starting salary for an accountant, not the compensation for a CFO.

Rather than argue the number, Bill worked the owner toward clarity: what does the business actually need as it grows, and what does $85,000 buy in today’s talent market? “It’s like the realtor taking you to the house you can afford,” Davon says. You see it, and you adjust. Part of the confusion, Bill adds, is that “CFO” had become a social title rather than a role. A thirty-five-year accountant earns the label, but a CFO’s job is financial strategy, capital investment, and aligning finance with a growth plan, not running accounts payable and receivable. “If you take that person and ask them to do your accounting, you’re going to spend a lot of money on them, and they’re going to quit.” Sometimes, Davon adds, the honest answer is that the business needs a controller, and that is cheaper.

The search settled at a base of roughly $250,000, more than double the owner’s opening figure. But by the time they got there, the tension was gone. “There was no more lack of trust,” Bill says. “It was clear alignment once we got there.” Clarity took the pressure out of the room, which is exactly where the conversation began. The discussion families dread is usually the one that releases the pressure they were already carrying.

“In the absence of clarity and documentation, there is an observable trend of negative assumptions being made about being treated fairly or unfairly. In most cases, people come with good intentions. The issue is the transparency, not the behavior.” 

— Bill Stranberg

Frequently Asked Questions

How should a family business pay family members versus non-family employees?

Pay employment compensation at market rate for everyone in the same role, family or not. If family members receive additional value — perks, housing, extra vacation — treat it as a separate category, fund it from a clearly identified allocation, and capture it on a total compensation worksheet so it is visible and defensible.

Why do compensation conversations feel so risky in a family business?

Because pay in a family company usually blends four different things — salary, performance, ownership return, and family perks — that get tangled together and left unspoken. The risk tends to come from the ambiguity, not the numbers. Naming the categories and the rationale behind them usually lowers tension rather than raising it.

Is it a problem for a family business owner to pay themselves below market?

It can be. A founder who takes a below-market salary to reinvest often hasn’t benchmarked anyone else’s pay either. That creates sticker shock and a credibility gap, the moment the business needs to recruit an outside executive at the real market rate.

Should compensation or decision rights come first when hiring a non-family executive?

Clarify the role and its decision rights first, then set compensation to match. A high salary implies broad authority. If the family is not prepared to grant that authority, the mismatch, not the pay figure, is what tends to cause the hire to fail.

What is the difference between a controller and a CFO in a family business?

A controller manages accounting operations: payables, receivables, the monthly close, and financial systems. A CFO owns financial strategy, capital investment, and aligning finance with the company’s growth plan. Promoting a long-tenured accountant into a CFO title without the corresponding role is a common and costly mistake.

About the Authors

Bill Stranberg is Managing Partner of Stranberg, an executive search and succession advisory firm serving family enterprises. Stranberg works with family businesses navigating CEO succession, leadership transition, and outside executive search. Learn more at stranberg.com.

Davon Cook is a family business advisor at Pinion, a national accounting and consulting firm specializing in the food and agriculture industry. Davon advises family enterprises on transitions between generations, governance, communication, and the compensation and leadership questions that come with growth. Learn more at pinionglobal.com or davon.cook@pinionglobal.com. 

Contact Stranberg