Family-owned businesses hold a unique place in the UK, forming the heart of countless industries and providing employment for millions. These companies offer much more than jobs—they provide stability, shared values, and a genuine commitment to making a lasting impact. For family businesses looking to thrive and grow, attracting and retaining skilled executives is essential. But it’s a delicate balance: how can they offer competitive pay packages while remaining true to the values that make them unique?
A Unique Approach to Executive Pay
Family businesses are distinct from public corporations, with a perspective on success that extends beyond the next quarterly earnings call. Their approach to executive pay often reflects this, with an emphasis on values as much as finances.
Without the pressures of shareholder oversight, family businesses can tailor pay packages that align with their goals and culture. This flexibility allows them to design incentives that encourage loyalty and shared purpose. For example, instead of high-stakes share options, family businesses might offer cash-based long-term incentive plans (LTIPs) linked to steady growth, giving executives a stake in the company’s success without the ups and downs of the stock market.
Non-family executives in family businesses are often motivated by more than salary.
Working alongside family members to help shape the business’s future can be profoundly rewarding. This focus on creating a legacy allows family-owned companies to structure pay packages that reward consistency over quick wins, a natural fit for businesses hoping to endure for generations.
Family businesses also offer stability in the way they value the business itself. Without the pressures of public market fluctuations, family firms often provide a more predictable path for equity-linked rewards. Executives who prefer a steady growth pattern find this appealing, as it offers a share in the company’s success without the unpredictability of public markets. For executives seeking stability and impact, family businesses can be a welcome change.
And while family businesses might not always match the City on base pay, they offer something different: culture. For many executives, especially those tired of corporate politics, a purpose-driven, community-oriented environment is deeply satisfying. But culture alone isn’t enough. For family businesses to truly attract and keep top talent, this cultural appeal must be thoughtfully balanced with fair, competitive compensation.
The Challenges of Executive Pay in Family Businesses
Despite their strengths, family businesses face unique challenges in developing competitive, values-driven pay packages for executives. Compensation discussions in family businesses are often more personal and may lack the formal structures seen in public companies. This personal approach can strengthen bonds but may blur the lines, making it difficult to establish clear processes. Family businesses can benefit from introducing some structure to ensure pay decisions are fair and objective. For instance, annual reviews involving family members and trusted advisors can introduce consistency while preserving the personal touch.
Family businesses also tend to create pay packages that are both innovative and complex. Phantom stock, deferred compensation, and other creative elements offer exciting opportunities but can be difficult for executives to fully understand. Clear communication around how these elements work—and when rewards are realised—builds trust and shows executives how their contributions align with the company’s long-term goals.
The culture of a family business is a strong attraction, but if base salaries or bonuses fall too far below market rates, family firms may find it difficult to attract the talent they need. Regular benchmarking against industry standards is essential, even if the business doesn’t aim to be at the top of the pay scale. This approach respects the values of family businesses while acknowledging the realities of today’s competitive job market.
LTIPs: A Tool for Alignment and Retention
Increasingly, family businesses are introducing LTIPs to motivate and retain executives. These long-term incentives offer more than financial rewards; they give executives a stake in the family’s vision and legacy. A thoughtfully designed LTIP is more than a pay package—it’s a pathway for executives to share in the family’s aspirations. Tying these incentives to important milestones, like sustainable growth or smooth generational transitions, ensures that executives are rewarded for the results that matter most to the family.
LTIPs are also effective retention tools. While typical LTIPs might vest over three years, family firms can extend this to five or even seven years, aligning with their commitment to stability and continuity. This longer vesting period encourages executives to stay engaged, knowing they’re helping build something enduring.
For family businesses that prefer a conservative approach to pay, LTIPs can help bridge the gap.
By giving executives a meaningful share in the company’s future, family firms offer values-driven compensation without changing their core philosophy. In this way, LTIPs serve as both a financial reward and a symbol of trust between the family and its executive team.
Building a Balanced Pay Approach for Family Businesses
For family businesses, building an effective executive pay strategy means balancing competitive pay with core values. A few essential steps can help:
Define a Clear Pay Philosophy
Setting out what the business stands for in its approach to pay helps build loyalty and avoid misunderstandings. Whether the aim is to prioritise a family-first culture or to align more closely with competitive standards, a defined pay philosophy ensures that everyone is on the same page.
Benchmark Regularly
Staying updated on market trends allows family businesses to make informed pay decisions, even if they prefer a conservative position. Regularly comparing salaries, bonuses, and benefits ensures that the business remains competitive without compromising on values.
Explain Pay Packages Clearly
Executives need a full understanding of their compensation package. Transparent explanations of complex features, like LTIPs or phantom shares, build trust and deepen engagement with the company’s unique pay structure.
Introduce Light Governance
While family businesses don’t need the strict formality of a corporate board, a light governance structure around pay decisions can help ensure fairness and consistency with family intentions.
The Path Forward for Executive Pay in Family Businesses
For family-owned businesses, executive pay is more than a package—it’s a reflection of values, trust, and a shared future. Designing pay structures that are both competitive and true to the family’s ethos helps these companies attract leaders who are as invested in the journey as the family itself.
About the Author: David Twiddle, Managing Partner at TWYD & Co, specialises in recruiting executive and non-executive roles for family businesses and assisting business families in overcoming complex and sensitive people challenges.