Malta’s economic backbone is famously built on family-owned enterprises. Yet, as these multi-generational businesses scale and professionalise, the informal practices that once helped them survive can become the very hurdles that hold them back. Chief among these challenges is the delicate, often taboo subject of executive compensation.

To understand the unique dynamics of pay structures within family businesses, we sit down with Maria Bartolo Zahra, an HR and Compensation Specialist with over two decades of experience and the Managing Partner at SurgeAdvisory.

With a passion for numbers and a deep understanding of human behaviour, Maria spends her days working alongside senior leadership teams to design robust reward frameworks. As businesses face a tightening regulatory environment, her insights reveal why it is time for family enterprises to formalise their pay strategies – before it’s too late.

As we begin our chat, Maria explains that family businesses operate on a fundamentally different frequency than strictly corporate entities. “I believe one of the things that makes a family business unique is that the business and the people aspect aren't separate,” she says. “This can be their superpower, but it can also be their blind spot, especially as the company grows.”

In the early days of a family enterprise, decisions are highly protective and pragmatic. Pay frameworks are practically non-existent. Instead, salaries are set by the founder through informal, one-to-one conversations. “Decisions were based on what felt right, what the business could afford, and also what kept the peace,” Maria notes. “Talking openly about money has historically been uncomfortable. You don't sit down with your brothers and sisters and start benchmarking your pay against the market. You possibly have a quiet word with your father or uncle, or else you live with what you're getting.”

However, what works brilliantly during the initial stages of growth quickly becomes a liability when the business attempts to scale or transition to the next generation.

When the next generation steps into executive roles, compensation rapidly becomes an emotional minefield. According to Maria, the most common pitfall is that a family executive's salary rarely reflects the actual work they are doing. Instead, compensation becomes a blurred mix of salary, dividends, and informal perks – like cars, fuel, and expenses run through the business.

“The traps I tend to see quite often are that the role of the person and their family identity get mixed up,” she warns. “You are getting paid because you're the son or the daughter, not for what you're actually delivering.”

This lack of objective benchmarking breeds inconsistency and friction. Here, Maria recalls past instances where female family members were paid less than their brothers on the outdated assumption that their family commitments would yield lower output. “That friction starts quietly and builds up to a point where it explodes,” she says. “Proper performance conversations tend to become quite impossible later on.”

Then, the status quo is almost always disrupted when a family business decides to hire its first non-family C-suite executive. Suddenly, the informal 'dining room table' agreements are no longer viable.

“When you get someone stepping in as a non-family member, the salary and the informal pay elements stop being a private family discussion,” Maria points out. Outsiders arrive with market expectations and a clear sense of their professional worth. “Suddenly, you have someone asking direct questions about pay progression, what they need to do to hit their bonus targets, and what their variables are. This can tend to be a bit of a shock to the business.”

Attempting to hide the 'lifestyle perks' enjoyed by family members from top-tier external talent is a losing strategy. Instead, transparency and clear distinctions are paramount. To this end, Maria advises her clients to explicitly separate a family member’s dual roles. “You recognise that family members could possibly also be shareholders, so they have a totally different economic relationship with the business than a salaried executive. That's a legitimate distinction. But it has to be made explicit... If you are paying family members differently, there must be a defensible reason on its own terms.”

Historically, a lack of structured pay in a scaling business was viewed as a soft governance risk – something that might make a board of directors mildly uncomfortable. Today, the stakes are significantly higher.

With the looming enforcement of the EU Pay Transparency Directive, subjective pay decisions are now a hard regulatory risk. “What used to be mostly a governance risk has now also become a regulatory risk. Now there are fines, and quite hefty ones,” Maria stresses. Employers are now required to base their pay decisions on objective, gender-neutral criteria and maintain rigorous documentation to produce pay gap reports.

“If you don't have a framework that can be articulated and defended, you have real exposure. I'm not saying it needs to be elaborate or complex, but it needs to exist, be applied consistently, be written down, and be clear to someone outside the family.”

Meanwhile, perhaps the most vulnerable moment for any family business is succession. It is the time when the lack of formalised structures is most glaringly exposed.

“The next generation isn't just inheriting the business; they're inheriting the structures and culture built around the founder's instinct rather than a framework,” she explains.

Implementing a formalised executive compensation plan acts as a vital safeguard during this transition. By establishing clear benchmarks, the emotional variables are removed from the table. “Pay becomes a framework applied consistently, rather than something siblings or cousins have to negotiate with each other or with a parent,” Maria says. Furthermore, it signals to external executives that the business has reached a new level of maturity.

Crucially, the goal is not to strip the family business of its unique identity. “The work isn't about turning them into corporates; it's about helping them format what needs to be formalised, without losing what makes them tick.”

Ultimately, structuring pay is an act of preservation. As Maria eloquently concludes: “A structure – while many might not think it – protects the family legacy because it protects the business.”