To set up a fair decision-making process for challenging issues, I recommend you follow the five steps below: 

1. Include important stakeholders in the process while being as transparent as possible.
2. Have the group of stakeholders define and develop a decision-making process for the issue.
3. Explain how the decision-making process was determined to the people impacted by it.
4. Test the process against your core principles and values.
5. Consistently apply the process when needed.  

Let’s take the compensation of a family member as an example. Often, next-generation owners who are not involved in the business feel that the next-generation owners currently working in the business are overpaid or enjoy too many perquisites. On the other hand, the next generation working in the business may feel that they are underpaid or not recognized for their efforts. This can put senior-generation business owners in a difficult situation. The business owner wants to be fair to their employees, but also does not want to be viewed as unfair to the family members not involved in the business. This can get even more complicated if the next generation not involved in the business actually owns a portion of the company.

In this situation, I recommend the business owner begin by involving each important stakeholder. Since compensation can be a very personal issue, the business owner may not want to seek input as to how much someone should be paid. Rather, I would suggest that the business owner ask each stakeholder how the compensation should be determined.

Once the business owner seeks the input of each important stakeholder, everyone can meet to develop a process for determining compensation. Again, I would avoid deciding on amounts and instead focus on how compensation should be determined.

One effective process to deal with sensitive compensation issues would be to form a compensation committee. If you already have an active board of directors, this is a common subcommittee. As part of forming the compensation committee, you may agree to ensure that there are independent board members or advisors on it. This will take away some of the potential personal issues that can pop up when dealing with family members.

After the compensation process is decided, you would then tell those impacted by the process. Those impacted might include the key employee, other owners, employees or in-laws of owners.

As part of the development of the process to decide compensation, one important thing to do is make sure it fits with your company’s culture. Personally, I like to do this by looking at the core values of a company to make sure the process fits in with them. When the culture squares to your process, you can be more confident that you have chosen the right approach.

If you do decide to use your compensation committee to determine the compensation of your key stakeholders, then regardless of the actual compensation paid to the employee, the key stakeholders should not complain that the process of deciding the compensation was unfair.

The final step here is to ensure this decision-making process is followed on a consistent basis. When there is a departure from the process, there should be a very compelling reason for the departure. Otherwise, the likelihood of someone complaining that they have not been treated fairly is quite high.

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