Fair compensation for women in family firms

By Kathy J. Marshack, Ph.D., P.S.

As Published in the Fall 2001 Family Business Compensation Handbook
For more information on the handbook visit –
http://www.familybusinessmagazine.com/handbooks/fbbooks.html#compensation

Because women tend to put family first, their contributions to the enterprise often are discounted. But paying them inequitably may cause family disharmony—or a ‘brain drain.’

When I was a girl, my mother used to tell me, “Women focus on relationships, not money.” Whether she was trying to teach me a lesson or merely to advise me of a fact, I have noticed the truth in this saying.

The value of relationships seems to be more important for women than for men. Women tend to define themselves in terms of their relationships more than men do. Women and girls are more willing than men and boys to put their needs aside to maintain a relationship.

Within a family firm, often the wife doesn’t draw a formal salary. She’s equally likely to forgo a formal title in the corporation, even though she may work just as hard as her husband. The same is true of daughters in family firms. They often assume their role is to support the family. They aren’t as driven as their brothers to be leaders. This doesn’t mean they eschew recognition. But their first priority is to ensure the success of the loving relationships. After all, these relationships came before the business and are the reason it came into being.

The value of love

Research indicates that most family firms were started by their founders primarily as a way to support the family. Women in family businesses still recognize this intent long after the men have turned their attention to developing a thriving enterprise. This concern for family first often gets in the way of equitable compensation for female members of family firms. Because the women are seen as caretakers of the family, they receive low salaries, while the men, who are viewed as caretakers of the business, are well compensated. It’s always been hard to put a value on love.

Even when women in family firms hold positions comparable to their male counterparts’, they’re often paid less than the men—even 50% to 70% less. Indeed, many women are paid nothing at all; the rationale is that they’re gaining other benefits of ownership. One national study touting the benefits of working for a family firm found that women across the nation earned an average of 16% of what their brothers earned!

Pat came to me because she was at odds with her brothers, who were her partners in their family company. There was a lack of trust and respect. Cooperation was grinding to a halt. She wanted help in restoring the relationships. Other family members also worked in the company, and Pat wanted her family to remain cohesive. Pat and her brothers needed to face and correct several problems, including issues related to stock ownership and compensation.

Two of the brothers were dissatisfied with the distribution of stock. Because they had joined the partnership years after the three founding partners, they owned less stock and wanted to buy more. The senior partners agreed in theory to an even division of stock, but they wanted the stock sold for its current value. While this disagreement raged on, no one took note of salaries until I talked with the accountant. While Pat, a founding partner, had as much stock as the two other founding partners, her salary was as much as 45% less than that of any of the brothers.

Pat had never really considered this inequity as a problem. On more than one occasion, she had been the only one to take a pay cut to help the business make it through a rough cycle. As a founding partner, she believed that she would be compensated well for her sacrifice. Now, however, her siblings were suggesting that she sell some of her stock to the two brothers at a reduced rate. Pat not only was a founding member of the business but also had contributed half the start-up costs, although the amount of stock she owned was equal to the amount her two brothers owned. No one was considering that Pat should be treated fairly, but it seemed important to be more than fair to the two brothers who wanted to buy in.

When I suggested that before the stock purchase the salaries should be re-evaluated and that Pat should be compensated for her years of delaying pay increases, I got blank stares from the men. It’s not that they didn’t value Pat; they just had never considered her salary before. They thought she was happy with what she was paid, so they never offered to increase her salary.

Women in family firms need to learn that if they don’t speak up, they get ignored. Men generally voice their opinions, as Pat’s brothers were doing. Women, on the other hand, tend to wait to be recognized.

Why pay women less?

Family business owners’ justifications for paying their female relatives less are often strange and misguided.

• “We save taxes by having my wife work for no salary.”
• “She owns stock in the company, so she doesn’t need a salary.”
• “She works only part-time, so we just pay for child care.”
• “She has flexible hours and can come and go as she pleases, which is a benefit in lieu of money.”
• “Her brother has a family to support.”
• “My son-in-law makes a good income, so my daughter doesn’t need the money.”
• “When she can take on a man’s job, she’ll get paid a man’s salary.”
• “She couldn’t make that kind of money working anywhere else.”
• “She may quit soon to have children, so I see no need to give her a raise.”

It’s hard to believe that in the 21st century, people still say these things, but they do, especially in family firms. Family-owned businesses are often closed systems. Although outsiders may work in the firm and even hold relatively high positions, the power and decision-making rests with the family owners. The closed nature of the system is demonstrated further by the tendency of family firms to follow traditional gender roles, regardless of what their competitors are doing. Generally wives and daughters hold support positions, while husbands and sons take leadership roles or technical positions. Thus, the women are assigned to lower-paying jobs.

When they join the company, daughters often are assigned the kind of jobs that keep them off the management track. Over the years the discrepancy increases between their salaries and benefits and those of their brothers. Rarely are daughters groomed for succession to leadership. Even if they possess native talent, they’re unlikely to acquire the requisite leadership skills if they’ve spent years being a secretary or bookkeeper. Furthermore, research in this field demonstrates that “Daddy’s little girl” is rarely considered for leadership unless there are no sons, even if she’s qualified by education and training.

Unfair compensation is counterproductive

Most self-employed people start their own businesses because they want to be compensated fairly for their work and they want freedom to be more creative. Money is one way to recognize a family employee for her contributions. Titles and other perks and benefits also are rewards for a job well done. When women aren’t accorded the same respect as men in the family business, two major problems develop. First, resentment and eventually power struggles arise. Second, talent development is thwarted.

While it’s true that women are willing to sacrifice salary and recognition to help the family and the business, they also usually believe that their sacrifices will be rewarded in the long run. But these sacrifices may never be rewarded. It’s just assumed that the women will play these roles without complaint. But when the rewards aren’t forthcoming, many family business women become depressed or angry. Depression and anger lead to illness or disharmony in the marriage or family. And personal problems in a family firm can lead to serious business problems.

My research with “co-preneurs” has shown that family business wives work as many hours as their dual-career counterparts, and they attend full-time to the home and children, too. Their husbands rarely help out at home. While this arrangement is what many family business couples feel is necessary to build a successful company, it takes its toll on self-esteem and intimacy. It seems foolish to compound the stress of this lifestyle with a thoughtless compensation plan. Family business wives should be paid what they are worth to the business and the family.

Many family business women don’t work full-time in the company. They have chosen to be more available to attend to family matters and contribute their talents to the community—and business success has allowed them to do so. But part-time work shouldn’t be considered less valuable to the family firm. Many law firms, for example, are changing their policy regarding part-time lawyers in recognition of the contributions of part-time professional employees. Because more women are becoming lawyers, and because these women want to maintain a healthy balance between home and work, many of them work half-time or three-quarter time. Law firms are even offering partnerships to their part-timers.

If a family firm wants to retain its talent pool, it’s time for CEOs of these firms to recognize—through fair compensation—the many contributions that the family business women make.

How to change the system

Women in family businesses are often the backbone of the organization. Whether she’s the founder, a founding partner, a supportive spouse or daughter, or an employee of the family enterprise, a woman often is willing to do work that others feel is beneath them because she recognizes the greater good. Research has shown that when a man starts a business, he usually can count on his wife’s unpaid labor during those lean start-up years. Women entrepreneurs, on the other hand, realize that they must go it alone if their businesses are to succeed. They too use the services of family and friends in those early years, but often their husbands don’t offer unpaid help with such menial chores as housework, child care or envelope stuffing. Limiting recognition of all of the contributions Mom makes to one day a year—Mother’s Day—is insufficient. As a stakeholder or a stockholder, a family business woman should be accorded compensation, benefits and perks befitting her considerable contributions to the health of the family and the enterprise.

There are two ways to accomplish this. First, the business owners should re-evaluate their standards and update stock, compensation and benefits plans for female employees. Second, they should implement programs to encourage the talent development of the girls in the family. Here are some suggestions:

1. Develop flexible compensation plans that reward women for their hard work and talent even if they work part-time or take a leave of absence.
2. Institute stock purchase plans for part-timers.
3. Evaluate voting rights. Is it absolutely necessary to be a partner or a full-time worker to have a vote?
4. Don’t ever pay the women according to what they would earn at another company. Pay them for their value to your family business. Obviously, a wife or mother is worth much more as your advocate than she would be paid as a bookkeeper in a non-family company.
5. Pay for child care, and encourage the family business women and men to take advantage of the opportunity. Better yet, set up on-site child-care centers so that family business women will not conflicted about leaving their children to go to work.
6. Set up a system to mentor the girls in the family. Often young women don’t even consider joining the family business, because they see the handwriting on the wall (i.e., the guys have sewn up all the good jobs). Arrange apprenticeships for the girls so they can learn first-hand about opportunities at your family firm.
7. Offer scholarships to girls who are willing to study business in college or major in an area applicable to your family business.
8. Don’t restrict scholarships to college. Offer start-up capital to young women who want to set up their own businesses if they write a good business plan.

Many family business owners mean well but just haven’t taken the time to delve into this problem. But if compensation and other recognition aren’t handled fairly for family business women, the enterprise will suffer from relationship disharmony as well as a “brain drain.” For the health and future success of the family business, these problems need correcting immediately.

I have found, however, that once the problem is presented, the average business owner wants to solve it. Many family business owners are innovative entrepreneurs, which means they do what works and are always looking to improve on the old, outdated ways. They know that to stay ahead of the competition and to keep the business thriving, they must look at opportunities that others don’t see. The development of family business women’s talents and skills through fair compensation is one such opportunity to put your business miles ahead of the others.

Kathy J. Marshack, Ph.D., a licensed psychologist and family business consultant in Vancouver, Wash., is the author of Entrepreneurial Couples: Making It Work at Work and at Home (Palo Alto, Calif.: Davies Black Publishing, 1998) and writes the “Families in Business” column for the Vancouver Business Journal.