One of the most important and emotionally charged topics in any family enterprise is compensation, especially when the rising generation steps in. It’s a conversation that stirs up a blend of financial logic, legacy emotion, and sometimes, deeply ingrained beliefs about fairness and worth.
So, how do we approach it with clarity, confidence, and compassion?
I’ve seen the best and worst of what happens when this conversation goes sideways. The family harmony, business sustainability, and future leadership pipeline all hang in the balance.
Just like other aspects of a family-owned enterprise, compensation benefits greatly from structure, clear processes, and a systematic approach. When it comes to how family members are paid—and what they’re paid—clarity is everything. Compensation is often one of the most sensitive and hotly debated topics in family businesses. By professionalizing the compensation structure, families create more consistent communication, set clearer expectations, and ultimately, strengthen relationships across generations.
Let’s unpack what a solid compensation strategy looks like today—and what needs to shift to meet the expectations of rising-gen family leaders.
A Changing Landscape: What the Research Tells Us
Family enterprises are adapting. According to Family Business Magazine, 84% of family-owned companies offer short-term incentives to executives, and nearly 46% pay above-market wages and benefits to attract and retain top talent. Yet, fewer than half offer long-term incentives, which could be a blind spot in continuity planning and talent retention.
And here’s what’s important to understand: today’s rising leaders don’t just want a paycheck—they want a path. They want to feel like they’ve earned their role, not inherited it.
Younger family members entering the business often cite “lack of transparency” and “unclear expectations” as top frustrations. If we don’t address this head-on, we risk disengagement—or worse, losing great talent to opportunities outside the family firm.
To strike a balance between fairness, business needs, and relationship health, here are key benchmarks we recommend building into your compensation strategy:
- Role-based market compensation – Start with real data. Use salary benchmarks to determine what the role would pay in the open market.
- Incorporate experience and qualifications – Not all roles or candidates are created equal. Reward tenure, credentials, and contributions.
- Review responsibilities of the role – Compensation should reflect the scope and impact of the job itself—not the person’s last name.
- Ensure the role is necessary – Avoid creating roles just to employ a family member. Every position must meet a business need.
- Create a consistent policy for bonuses and raises – Align with broader company practices to reinforce professionalism and parity.
Market-Based Meets Performance-Based
There’s a sweet spot when you merge objectivity with merit.
- Market-based pay gives you the baseline—anchoring compensation in data, not emotion.
- Performance-based pay provides the accelerator-rewarding results, growth, and leadership.
- Family-factor pay? That’s where it gets tricky—but it doesn’t have to get messy.
Start with structure. Add transparency. Then communicate, document, and reinforce it often. When the rising generation knows how they’ll be evaluated and compensated—and that they’re held to the same standards as non-family employees—it builds trust, loyalty, and pride.
Employment Should Be Earned, Not Entitled
Being born into the family should open a door—it shouldn’t guarantee a seat at the leadership table.
Our children, nieces, nephews, and rising-gen leaders deserve the chance to earn their place. They need to take risks, learn from failure, and build their credibility. When we shield them from that in the name of love or legacy, we may unintentionally stunt their growth as future leaders.
To maintain objectivity and remove bias from the discussion, we recommend starting with a compensation committee that develops the approach for the compensation structure and process for family members working in the business. In a family business, there needs to be an approach that eliminates the bias and recognizes that there is a balance between fairness, sustainability, and maintaining relationships.
The rising generation is ready. The question is—are we compensating them in a way that reflects who they are, who we are, and what we want to become?
