By Paul Karofsky

Family gatherings had always been hard for Jan, especially when they include dinner at Betty and Henry's house. On the way to a party there this past New Year's with her husband, Joey, Jan shared a frequent battle cry -- Henry, Joey's brother and partner in a small chain of dry-cleaning stores, never seemed to work as hard, yet he and Betty always lived so well. It just wasn't fair, she complained.

Jan said the party started well enough. The difficulty, she later told me, began after the guests were seated for dinner and all eyes turned to the head of the table, where sister-in-law Betty raised her glass to make a toast. Jan's gaze fixed upon Betty's expensive new ring. ("It must have cost more than their first house," another family member notes later.)

"Betty," Jan said, "That's quite something. I sure as %$&@ can't afford anything like that!" "Don't go there," urged Joey. But Jan was just warming up. As more hostile jabs were exchanged, the formerly festive room quickly filled with tension and uneasy silence. The gathering had foundered on an age-old issue in the world of family business: "Does fair mean equal?"

EFFICIENT OR A GOOF-OFF?  I've come across countless forms of the same dilemma in my career advising family-run companies. One old-line enterprise had a policy of treating all family members equally, regardless of their roles and responsibilities. By the time the business reached the third generation, the family consisted of 11 siblings and cousins.

Each had an office of the identical square footage. Each was paid the same hefty salary and bonus. And every two years, each got an identical new Cadillac, except for the color. An old-time business school professor advised them that if this continued, they would be out of business within a decade. (Just imagine what would happen with 20-plus family members in the fourth generation.) They continued, and he proved correct.

In another family I've seen, one brother is a workaholic, and his twin is passionately devoted to reducing his golf handicap to a single digit. Yet both are still paid the same, raising the question of fairness for the hard worker -- as well as his wife. The golfer tells me he's more efficient, and his job is just as important as his brother's. He believes that if he can finish his work early in the day, then why not go out to play? The other tells me his sibling is a goof-off and less committed to the business.

CLASHING VALUES.  Lifestyle choices often fuel the fire. One family member may be an aggressive consumer and opt to max out her or his credit cards, while another may be a chronic saver. But here's the catch: Anecdotal data proves to me that if there are significant differences in lifestyles, regardless of similarity in compensation, spouses are certain to perceive greater inequality among family partners as well. While the business partners themselves may readily forgive the differences, their spouses -- especially "scorekeepers" like Jan -- are often loath to do so.

Family co-owners can be equals in many ways -- compensation, ownership percentage, and decision-making authority among them. But that doesn't mean their roles or skills and abilities are necessarily equal. Nor does it guarantee equal commitment to the business. In another family business I know, second-generation family members, including the CEO, used to be paid an hourly rate and had to punch a time clock. This actually prompted one family member to punch in at 3 a.m. and spend the next four hours sleeping at his desk.

Disparate value systems -- family vs. business -- coupled with unmet expectations are at the root of the dilemma. Family relationships are supposed to be about unconditional love, valuing others for who they are. In business, it's about competency, where people are valued for what they do and how well they do it. When family business partners expect the family value system of unconditional acceptance and equality in a business relationship, the result can often be disappointing.

ADDRESSING RESENTMENT.  So how do you manage the situation? For partners like Joey and Henry, there needs to be an explicit understanding of what "commitment to the business" means, plus clarity on roles and responsibilities and an appropriate compensation plan as well. There's no cookie-cutter solution here on compensation -- one size does not fit all.

However, a formula that seems increasingly acceptable, especially to younger generation family members, is a base salary at fair market value, plus a bonus based on performance quality, plus or minus a yearend "adjustment" because of ownership. (Curiously, family members are actually paid less, on average, than their non-family equivalents because so many opt to reinvest some of that compensation back into the business.) Implicit in this plan is also a process for performance appraisal, but that's a topic for another column.

So does fair mean equal? In my opinion, not necessarily. Then again, nor does equal necessarily mean fair. I've found that it's actually O.K. -- and sometimes even healthy -- for family members to struggle with these issues, so long as they're ultimately reconciled. But simply letting resentment simmer, as in the case of Jan and Joey, can drive a wedge between business partners who also happen to share a holiday dinner table.