For several months we have focused on how to redesign and change an under-performing (and generally costly) sales-compensation plan. Let's say that you have followed our prescription, did the hard work and analysis, and gained the needed consensus to proceed. You now should find yourself with a new and better sales pay plan for your sales force—at least on paper. Now for the tricky part: selling it to your sales force.

This is the point where most clients and designers are tempted to relax because they believe the precise logic, wisdom, principles and analysis they have applied to redesigning the pay plan will be readily accepted and obvious to the sales force. And, participants will welcome such changes with open arms.

Not true! Why? "You are about to change my paycheck and our deal." Any type of change is difficult to accept, but changes to the paycheck are at the top of the list. What to do?

We recommend that following a simple, multi-step communication plan will greatly improve your success at implementing the new pay plan.

1. Tell the sales force why you are making this change. This is a good time for the CEO to call the sales force together and discuss performance expectations, talk about why the old pay plan needed to be changed and outline how the new pay plan will drive both future success and pay opportunity. It is always best to keep the CEO's talk strategic. To accomplish this, we recommend that both the CEO and top sales executive participate in the briefing. The CEO should leave the details to the VP. Then, answer any and all questions from the floor. In closing, assure the sales force they will be given the details of their individual pay plan by day's end.
2. Engage each sales representative individually that very day. Have each representative meet with their manager after the CEO/VP meeting. The sales representative should be given a one-page plan description and a series of examples that will show how their plan will work in the coming year under various performance conditions. [We like using customized spreadsheets.] Also, show them how their new plan compares to the "old" plan. This document package is for their review, but it also gives them materials that they can share with a spouse or other family member. And, do not be afraid to address the question—"Do you mean I could make less under this plan?" Some people always will and you must be prepared to explain. Finish by scheduling a follow-up meeting in a month, or less.
3. Keep those doors open. The CEO, top-sales executive and sales managers should take every opportunity to reach out to the sales force and ask how the new pay plan is working. Is it fair? Does it get in your way? Does it encourage you to do the wrong things? We have found that these impromptu discussions often provide the data and information needed to fine-tune or "calibrate" the new plan.
4. Be willing to calibrate and adapt the new plan during Year One. Why is this a communications step? It tells the sales force that you are listening to them and are interested in what is good for the company and the sales force. Plan calibration can be a good thing, as long as you do not forget why you are putting in the new plan in the first place.

Do not forget to leave money in the budget for communicating your compensation plan changes. Not investing time and dollars at the end of the process can negate everything you have already spent, and create a storm that may not pass over for a year or three.

• Less than 30% of all family businesses survive that way into the third generation. In our experience this often happens because of the exponential growth of shareholders (with often widely-different interests) as the enterprise ages through generational change. In fact, we once worked with a failing firm with over 35 voting stockholders—without a single majority owner or leader.
  
• US-based family businesses outperform publicly-held companies by nearly 3% annually when measured in terms of 10-year total return to shareholders. Similar results were found for European and other international companies.
  

McKinsey goes on to explain why some family enterprises endure and exhibit superior performance in terms of several key attributes of success. Let me summarize and comment.

1. Control and direction for family member participation. Successful firms clearly establish principles and rules for how current and future family members will participate in the business affairs of the enterprise. This may include such issues as: required experience, rules for family-executive appointment and approval, compensation policy, performance expectations and career alternatives. We call it simply protecting the "golden goose."
2. Maintain and control of company ownership. Clear agreements are established between shareholders regarding the sale or transfer of stock. This is particularly challenging with maturing ownership as varied opinions arise regarding how to use (my) company cash flows: invest or distribute. Using cash and capital to buy out unhappy shareholders has its limits and is generally a poor use of capital—unless both planned (i.e.: required) and long-term in nature. Once a family company starts to liquidate itself to satisfy dissident stockholders it can both lose control of the business and open the door to failure.
3. Build strong governance processes. A strong Board of Directors (or advisors) comprised of both family owners and experienced or influential outsiders (historically 40% of Board seats) is most often the answer. These Boards are integral to key strategic and investment decisions. Weak Boards lead to serially-bad or poorly-conceived decisions and can bring a company to a disastrous end—family or public. [See our November 2009 E-Letter regarding Boards of Directors.]
4. Take a long-term view of growth, performance and investment to build and protect wealth. The operative terms here in our experience are sustained performance and growth, and the management of risk.
   1. Sustained performance and growth (in terms of free cash flow) will build the real value of the company which will bring a variety of benefits to share holders in terms of both cash and opportunity; and
   2. Family owners usually have a significant part of their wealth associated with the business. This often leads to more prudence and risk avoidance (or management) than their corporate counterparts. Consequently, family-business leverage (long-term debt as a % of equity) has historically been 5-15% less that similar public-peer companies' according to McKinsey's research. Consequently, family-company cost of capital has often been lower than their public peers.
5. Family wealth should be professionally managed for the benefit of all owners. This will allow all owners (whether actively involved with the business or not) to benefit from the success of the company and generally increase family and shareholder harmony. Of course, wealth and portfolio management are never a sure thing as the last two years have brought home with great clarity. But, recognizing the need to manage collective shareholder wealth is an important step to take.
6. Active charitable activities and social responsibility are often present in successful family companies. This can provide a mission for the family, and meaningful employment for shareholders not actively employed in the business. So while the business does well, the family also has the opportunity to do good.

Family businesses are unique with complex governance and management needs. While the above attributes are both insightful and often true, we believe that a family company must follow one simple rule to assure its continuing success:

Focus on your business first and assure that family considerations or tensions do not get in the way of good enterprise governance.

With a solid business in place, you will then have the time, energy and resources to address the complexity of family dynamics and harmony.