Compensate family members fairly

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Money can always be a source of conflict in a family business. Too often, money problems are created by poor planning and poor communication. Family members need to receive a fair salary, in a timely manner, in return for their services.

Compensation issues need to be discussed before members enter the family business. Records from a number of farm record services show that it takes more than $45,000 per year to support a family. Not all family living expenses come from one wage earner in 2001, but every family business needs to ask: Will the business allow a living wage for all family members? If not, perhaps the family member needs off-farm employment also. Numerous farm and ranch operations I have worked with over the years have needed family members to work off farm until the business can support the entire family.

Family members need to know how much they will receive and when they will be paid.

I remember sitting at the kitchen table with the family patriarch and his wife discussing their son's return to the dairy operation. When I questioned how the son, who was married with a child on the way, was to be compensated, the father told me how he had started in business with his own father. "They will get by like we did," he said proudly. "After all, they will have a house, meat, and milk.... what more could they need?" I noticed the mother becoming more agitated as our conversation continued and finally she blurted out "You are not going to put our son through the same money problems we had to deal with when we started. I was always the one who had to go to your parents to beg for money. Our son is going to get a regular salary!" Mother recognized the need for a predictable source of funds and insisted on a regular salary for the returning son.

The more family members involved in the operation, the greater the chance for money problems. Even though family members have different job skills and different levels of education, I believe it's important that all members of the business are compensated equally. All family members are equally important in the family business, and problems can develop in relationships if family members believe one family member is better compensated than another.

I actually saw one farming operation destroyed because of the greed of one family member. The farming operation supported four families: the father and his three sons. Each of the sons was responsible for a section of the operation, even though they all worked together when help was needed. The hog operation was very successful, and farm records demonstrated that hogs were more profitable than the grain operation or the cattle herd.

The problem started when the "hog son" decided he wasn't being properly compensated. After all, his enterprise was making the most money and his job was the dirtiest. He needed more money than his brothers did because he was earning it!

The other brothers really weren't happy with the extra salary for the hog manager; but, then again, they didn't want to work in the hog building, so they acquiesced to his demands. The next year, the "hog son" decided he still needed more money. So, once again, the other family members surrendered and allowed additional salary to the one brother. Year three brought another set of demands and the operation broke up. The brothers were unable to work together because they had different goals and income needs.

Be sure to discuss compensation issues openly with family members to keep both the family and the business successful.

Darrell Dunteman, AAC, is an Accredited Agricultural Consultant and accountant with offices in Bushnell, Ill.



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