As founder-led companies grow, simple pay arrangements can become complicated. New non-family leaders join, the next generation steps in, and the business becomes more professionalized. In a recent conversation, Davon Cook, family business advisor at Pinion, and Bill Stranberg, executive search advisor at Stranberg, discussed why compensation can become one of the thorniest issues inside a growing family business.
Their discussion made one thing clear: family business compensation is rarely just a payroll decision. It is a governance conversation, a culture conversation and, often, a succession conversation.
Separate the Different Ways Family Members Are Paid
To help families separate those roles, Cook uses a framework she first heard from family business thought leader Kim Schneider Malek. It recognizes that family members may be paid in four ways: for the job they do, how well they do it, what they own and, sometimes, who they are within the family.
That fourth category can be the hardest to name. It may include family perks like access to vacation house or vacations, gifts, inheritance expectations, or other benefits tied to family membership rather than job performance.
“The more that you can be clear on the distinctions between those four buckets and just acknowledge them for what they are, the better that serves you long term,” Cook said.
When compensation is not tied to distinct roles, it can become a black box. A family employee may earn more than a non-family employee doing the same job, not because of performance or market value, but because ownership benefits or family perks are being folded into salary.
“Double standards around compensation can quietly damage the culture,” Stranberg said. “What you want is for people to feel there is a culture of fairness. That doesn’t mean eliminating every family benefit. It means naming those benefits honestly, putting process around them, and keeping employment compensation tied to market value and role expectations.”
Make Perks and Expenses Visible
Tax strategy adds another layer. Many family businesses legitimately run expenses through the company, such as vehicles, housing, insurance, health care premiums or other business-related costs.
Without clear policies, those practical financial decisions can quickly become sources of conflict. Who decides when one company-owned house gets remodeled and another does not? How often are family vehicles replaced, and at what price point? If fuel cards, insurance, or other benefits extend to younger family members, how is fairness measured?
The key is to make perks visible, documented, and consistently managed through written policies, annual limits, and total compensation statements.
Cook also recommended a total compensation worksheet so family members can see salary, vehicles, housing, insurance, and other benefits in one place. That visibility helps prevent someone from feeling underpaid based only on wages when the broader picture tells a different story.
At a certain stage, simplification may be fairest. As more family members and ownership branches become involved, standardized wages, clearer policies, and fewer informal perks may better support transparency across the family and the business.
Do Not Let Underpayment Become the Benchmark
Family businesses can also create problems by paying too little, especially when an owner-operator keeps their own salary low to reinvest in the company. That choice may feel responsible, even noble, but it can distort expectations and create what Cook called “a problem that’s compounding.”
That issue often shows up during succession or executive hiring. A family owner who has been running a large company on a modest salary may experience sticker shock when market data shows what it takes to recruit a qualified non-family CEO, CFO, or other senior leader.
If the business has not benchmarked compensation in years, the gap can force a choice between adjusting to the market or hiring someone willing to accept below-market pay.
Strong outside executives typically expect market-based pay and may also look for long-term incentives, such as profit sharing, phantom stock, or a structured bonus plan.
Vague discretionary bonuses can create a similar issue. Owners may view discretion as flexibility, but outside executives may hear uncertainty.
Defining a target bonus range, performance expectations, and decision rights upfront makes the opportunity more credible and helps both sides understand what success looks like.
“Compensation should be one of the last things you discuss,” Stranberg said. “First, you need to figure out what the job is.”
Clarify the Job Before Discussing Compensation
Before setting pay, Cook and Stranberg emphasized that family businesses need to answer a more basic question: What is the job?
Titles can be misleading. A longtime employee may hold the CFO title, but the role may look more like a controller, accountant, or operational generalist.
Cook put it simply, “Some family businesses assume they need a CFO when, after digging into the actual responsibilities, maybe they really need a controller.”
Compensation should reflect the real authority, responsibility, and expectations attached to the role, not simply the title on a business card.
Use Clarity to Reduce Compensation Conflict
Compensation conversations can feel uncomfortable because they touch money, fairness, family history, and control. But avoiding them rarely protects the business. Ambiguity often leads people to fill in the gaps with assumptions, and those assumptions are usually negative.
Families can reduce that tension by documenting policies, using market data, defining who has authority to make pay decisions, and explaining how salary, bonuses, ownership returns, and family benefits are determined.
Cook described that clarity as “a pressure release valve.” Even when not everyone agrees, transparency helps people understand the rationale, reduce conflict, and protect the culture.
If questions around compensation, succession, or governance are creating uncertainty in your family business, a Pinion family business advisor can help you build the structure, clarity, and alignment needed to support confident decisions and long-term growth.
