Should contributions to the success of a family farm or ranch be compensated? One of the most difficult decisions owners of a farm and ranch business confront occurs when one heir returns to the family business, while he or she has siblings that do not. If you start out with the premise that we all love our children and hope to treat them fairly, it follows that if contributions to the success of the farming business are more or less equal we should compensate our children more or less equally. The difficulty arises because the farming heir will many times make contributions to the success of the business that are not equaled by their siblings. If one agrees with the statement that contributions should be compensated, then we must consider how compensation will be provided to the heir that has made the contribution

Goeller, Dave

English

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University of Nebraska - Lincoln 
DigitalCommons@University of Nebraska - Lincoln 
Cornhusker Economics Agricultural Economics Department 
10-2011 
Does Contribution Equal Compensation? 
Dave Goeller 
University of Nebraska-Lincoln 
Follow this and additional works at: https://digitalcommons.unl.edu/agecon_cornhusker 
 Part of the Agricultural and Resource Economics Commons 
Goeller, Dave, "Does Contribution Equal Compensation?" (2011). Cornhusker Economics. 513. 
https://digitalcommons.unl.edu/agecon_cornhusker/513 
This Article is brought to you for free and open access by the Agricultural Economics Department at 
DigitalCommons@University of Nebraska - Lincoln. It has been accepted for inclusion in Cornhusker Economics by an 
authorized administrator of DigitalCommons@University of Nebraska - Lincoln. 
CORNHUSKER
ECONOMICS
University of Nebraska–Lincoln Extension
October 26, 2011
Institute of Agriculture & Natural Resources
Department of Agricultural Economics
http://agecon.unl.edu/cornhuskereconomics
Does Contribution Equal Compensation?
Market Report
Yr 
Ago
4 Wks
Ago 10/21/11
Livestock and Products,
 Weekly Average
Nebraska Slaughter Steers,
  35-65% Choice, Live Weight. . . . . . . .
Nebraska Feeder Steers, 
  Med. & Large Frame, 550-600 lb.. . . .
Nebraska Feeder Steers,
  Med. & Large Frame 750-800 lb. . . . .
Choice Boxed Beef, 
  600-750 lb. Carcass. . . . . . . . . . . . . .
Western Corn Belt Base Hog Price
  Carcass, Negotiated. . . . . . . . . . . . . .
Pork Carcass Cutout, 185 lb. Carcass,   
  51-52% Lean.. . . . . . . . . . . . . . . . . . .
Slaughter Lambs, Ch. & Pr., Heavy,
  Wooled, South Dakota, Direct. . . . . . .
National Carcass Lamb Cutout,
  FOB. . . . . . . . . . . . . . . . . . . . . . . . . .
$100.57
123.23
115.78
159.19
62.90
77.52
144.37
338.87
$115.82
141.93
137.07
184.50
88.21
96.63
178.25
406.35
$120.99
156.82
145.07
184.81
90.75
99.30
170.00
410.22
Crops, 
 Daily Spot Prices
Wheat, No. 1, H.W.
  Imperial, bu. . . . . . . . . . . . . . . . . . . . .
Corn, No. 2, Yellow
  Omaha, bu. . . . . . . . . . . . . . . . . . . . .
Soybeans, No. 1, Yellow
  Omaha, bu. . . . . . . . . . . . . . . . . . . . .
Grain Sorghum, No. 2, Yellow
  Dorchester, cwt. . . . . . . . . . . . . . . . . .
Oats, No. 2, Heavy
  Minneapolis, MN , bu. . . . . . . . . . . . .
5.50
5.11
11.25
8.84
3.52
6.18
6.25
12.11
10.32
3.46
6.33
6.46
11.85
10.97
3.54
Feed
Alfalfa, Large Square Bales, 
  Good to Premium, RFV 160-185
  Northeast Nebraska, ton. . . . . . . . . . .
Alfalfa, Large Rounds, Good
  Platte Valley, ton. . . . . . . . . . . . . . . . .
Grass Hay, Large Rounds, Good
  Nebraska, ton. . . . . . . . . . . . . . . . . . .
Dried Distillers Grains, 10% Moisture, 
  Nebraska Average. . . . . . . . . . . . . . .
Wet Distillers Grains, 65-70% Moisture, 
  Nebraska Average. . . . . . . . . . . . . . .
185.00
75.00
*
155.00
52.75
185.00
117.50
92.50
197.50
72.50
190.00
132.50
92.50
222.50
72.50
*No Market
Should contributions to the success of a family farm or
ranch be compensated? One of the most difficult decisions
owners of a farm and ranch business confront occurs when
one heir returns to the family business, while he or she has
siblings that do not. If you start out with the premise that
we all love our children and hope to treat them fairly, it
follows that if contributions to the success of the farming
business are more or less equal we should compensate our
children more or less equally. The difficulty arises because
the farming heir will many times make contributions to the
success of the business that are not equaled by their
siblings. If one agrees with the statement that contributions
should be compensated, then we must consider how
compensation will be provided to the heir that has made the
contribution.  
Evaluate the Contributions
Contributions can be made in a variety of areas:  Labor
can be provided by the heirs. Management for a farm
business enterprise or for the overall farm may be provided
by the on-farm heir.  Marketing may be done by heirs, and
technical skills are areas in which the younger generation
tend to excel. Appropriately, timed capital purchases may
also be a form of contribution to the family business. Many
parents might say “We would have retired and sold the
farm years ago if our child had not decided to come back
into the business.” In that case, the family business would
not have benefitted from recent appreciation in farm assets
if the farming successor had not returned. Many on-farm
heirs also assist by providing help and care to aging
parents. The list goes on and on.
Types of Compensation 
There are several methods that can provide
compensation:    
1. Cash Payment -  The simplest is to pay the heir that
provides a service a fair cash payment for their
Extension is a D ivision of the Institute of Agriculture and Natural Resources at the University of Nebraska–Lincoln
cooperating with the Counties and the U.S. Departm ent of Agriculture.
University of Nebraska Extension educational program s abide with the non-discrim ination policies 
of the University of Nebraska–Lincoln and the United States Departm ent of Agriculture.
contribution. If the farming heir provides labor to the
business, compensation can be provided by valuing
the labor and paying a wage for the contribution.
Likewise, management can be compensated by
making a cash payment based on a percentage of the
gross sales. If the individual brings an enterprise to
the operation, a percentage of the profits earned by
that enterprise can be calculated. It can be a bit more
complicated when the owners decide they would have
retired and sold the farm years ago had the farming
heir not returned, but an estimate of that value can be
determined. Cash payment for contributions sounds
like a clean way to deal with this issue, however, it
runs counter to the typical farm situation where we
often find the farm business is “asset rich but cash
flow poor.” As a result, many of the on-farm heirs are
paid with promises, sometimes spoken but many
times only implied. 
2. Sweetheart Rental Terms - Because cash tends to
be in short supply, many operations have chosen to
provide reduced rental rates of farm land or other
farm assets as a way to attempt compensation for the
on-farm heir. It is common to see agreements that
provide free or subsidized use of farm machinery in
exchange for the heir’s contribution. Tax issues
should be considered if compensation is to be paid in
this manner.  
3. Estate Plan - Many farming operators choose not to
make cash payments or provide a sweetheart rental
term. Some simply are not able to afford a cash
payment or to reduce the income stream through a
rental discount. If compensation cannot be made in
any other manner, the remaining option is to try to
account for unequal contributions by heirs through
the estate plan. Many factors influence an
individual’s estate plan. Keeping the farm in the
family, financial viability of the business, and control
of the operation are but a few. In situations where the
uncompensated value of the heir’s contribution is
large, there may be a few considerations that provide
food for thought.
• Joint Ownership of Farm Assets - If the estate
plan provides for joint ownership of all heirs, it
may be important to provide control of the farm
assets to the farming heir. Such tools as long-term
leases, corporations or Limited Liability
Companies (LLCs) can provide for equal
ownership of farm assets, while providing for
control of the assets to the farming heir. Terms
and exit strategies should always be considered.
Long-term business arrangements can produce
situations that create unhappy business partners
who may not be satisfied with relatively low
returns on high valued land.   
• Equal but Separate Ownership of Farm Assets
- If the estate plan provides for equal but separate
ownership of farm assets it may be desirable to
provide a term five- or ten-year lease for the on-
farm heir to have the option to rent the land from
the siblings. This provides the on-farm heir with a
chance to prepare should the siblings choose to sell
their inheritance. There can also be an option to
purchase or first right of refusal provided to the
farming heir, should his/her siblings choose to sell
their inheritance.
• Ownership of Farm Assets to Farming Heir
Only - There are many cases in which the farming
heir inherits the farm assets, while other non-farm
assets such as investments or life insurance provide
an inheritance for the non-farming heirs. If farm
assets are much larger than non-farm assets, you
may want to consider a shared appreciation
agreement that would require the farming heir to
share in the sale of the farm assets should they
decide to cash out before a specified period of
time.
A strategy to fairly compensate an individual for their
contribution usually uses a combination of these three
methods - cash payment, sweetheart rental arrangements, as
well as an estate plan. The important issue is not how
compensation will be made, but if compensation will be
made.
Dave Goeller, (402) 472-0661
Deputy Director
North Central Risk Management Education Center
Department of Agricultural Economics
University of Nebraska-Lincoln
dgoeller@unl.edu
                           


Does Contribution Equal Compensation?

DigitalCommons@University of Nebraska

University of Nebraska - Lincoln DigitalCommons@University of Nebraska - Lincoln Cornhusker Economics Agricultural Economics Department 10-2011 Does Contribution Equal Compensation? Dave Goeller University of Nebraska-Lincoln Follow this and additional works at: https://digitalcommons.unl.edu/agecon_cornhusker  Part of the Agricultural and Resource Economics Commons Goeller, Dave, "Does Contribution Equal Compensation?" (2011). Cornhusker Economics. 513. https://digitalcommons.unl.edu/agecon_cornhusker/513 This Article is brought to you for free and open access by the Agricultural Economics Department at DigitalCommons@University of Nebraska - Lincoln. It has been accepted for inclusion in Cornhusker Economics by an authorized administrator of DigitalCommons@University of Nebraska - Lincoln. CORNHUSKERECONOMICSUniversity of Nebraska–Lincoln ExtensionOctober 26, 2011Institute of Agriculture & Natural ResourcesDepartment of Agricultural Economicshttp://agecon.unl.edu/cornhuskereconomicsDoes Contribution Equal Compensation?Market ReportYr Ago4 WksAgo 10/21/11Livestock and Products, Weekly AverageNebraska Slaughter Steers,  35-65% Choice, Live Weight. . . . . . . .Nebraska Feeder Steers,   Med. & Large Frame, 550-600 lb.. . . .Nebraska Feeder Steers,  Med. & Large Frame 750-800 lb. . . . .Choice Boxed Beef,   600-750 lb. Carcass. . . . . . . . . . . . . .Western Corn Belt Base Hog Price  Carcass, Negotiated. . . . . . . . . . . . . .Pork Carcass Cutout, 185 lb. Carcass,     51-52% Lean.. . . . . . . . . . . . . . . . . . .Slaughter Lambs, Ch. & Pr., Heavy,  Wooled, South Dakota, Direct. . . . . . .National Carcass Lamb Cutout,  FOB. . . . . . . . . . . . . . . . . . . . . . . . . .$100.57123.23115.78159.1962.9077.52144.37338.87$115.82141.93137.07184.5088.2196.63178.25406.35$120.99156.82145.07184.8190.7599.30170.00410.22Crops,  Daily Spot PricesWheat, No. 1, H.W.  Imperial, bu. . . . . . . . . . . . . . . . . . . . .Corn, No. 2, Yellow  Omaha, bu. . . . . . . . . . . . . . . . . . . . .Soybeans, No. 1, Yellow  Omaha, bu. . . . . . . . . . . . . . . . . . . . .Grain Sorghum, No. 2, Yellow  Dorchester, cwt. . . . . . . . . . . . . . . . . .Oats, No. 2, Heavy  Minneapolis, MN , bu. . . . . . . . . . . . .5.505.1111.258.843.526.186.2512.1110.323.466.336.4611.8510.973.54FeedAlfalfa, Large Square Bales,   Good to Premium, RFV 160-185  Northeast Nebraska, ton. . . . . . . . . . .Alfalfa, Large Rounds, Good  Platte Valley, ton. . . . . . . . . . . . . . . . .Grass Hay, Large Rounds, Good  Nebraska, ton. . . . . . . . . . . . . . . . . . .Dried Distillers Grains, 10% Moisture,   Nebraska Average. . . . . . . . . . . . . . .Wet Distillers Grains, 65-70% Moisture,   Nebraska Average. . . . . . . . . . . . . . .185.0075.00*155.0052.75185.00117.5092.50197.5072.50190.00132.5092.50222.5072.50*No MarketShould contributions to the success of a family farm orranch be compensated? One of the most difficult decisionsowners of a farm and ranch business confront occurs whenone heir returns to the family business, while he or she hassiblings that do not. If you start out with the premise thatwe all love our children and hope to treat them fairly, itfollows that if contributions to the success of the farmingbusiness are more or less equal we should compensate ourchildren more or less equally. The difficulty arises becausethe farming heir will many times make contributions to thesuccess of the business that are not equaled by theirsiblings. If one agrees with the statement that contributionsshould be compensated, then we must consider howcompensation will be provided to the heir that has made thecontribution.  Evaluate the ContributionsContributions can be made in a variety of areas:  Laborcan be provided by the heirs. Management for a farmbusiness enterprise or for the overall farm may be providedby the on-farm heir.  Marketing may be done by heirs, andtechnical skills are areas in which the younger generationtend to excel. Appropriately, timed capital purchases mayalso be a form of contribution to the family business. Manyparents might say “We would have retired and sold thefarm years ago if our child had not decided to come backinto the business.” In that case, the family business wouldnot have benefitted from recent appreciation in farm assetsif the farming successor had not returned. Many on-farmheirs also assist by providing help and care to agingparents. The list goes on and on.Types of Compensation There are several methods that can providecompensation:    1. Cash Payment -  The simplest is to pay the heir thatprovides a service a fair cash payment for theirExtension is a D ivision of the Institute of Agriculture and Natural Resources at the University of Nebraska–Lincolncooperating with the Counties and the U.S. Departm ent of Agriculture.University of Nebraska Extension educational program s abide with the non-discrim ination policies of the University of Nebraska–Lincoln and the United States Departm ent of Agriculture.contribution. If the farming heir provides labor to thebusiness, compensation can be provided by valuingthe labor and paying a wage for the contribution.Likewise, management can be compensated bymaking a cash payment based on a percentage of thegross sales. If the individual brings an enterprise tothe operation, a percentage of the profits earned bythat enterprise can be calculated. It can be a bit morecomplicated when the owners decide they would haveretired and sold the farm years ago had the farmingheir not returned, but an estimate of that value can bedetermined. Cash payment for contributions soundslike a clean way to deal with this issue, however, itruns counter to the typical farm situation where weoften find the farm business is “asset rich but cashflow poor.” As a result, many of the on-farm heirs arepaid with promises, sometimes spoken but manytimes only implied. 2. Sweetheart Rental Terms - Because cash tends tobe in short supply, many operations have chosen toprovide reduced rental rates of farm land or otherfarm assets as a way to attempt compensation for theon-farm heir. It is common to see agreements thatprovide free or subsidized use of farm machinery inexchange for the heir’s contribution. Tax issuesshould be considered if compensation is to be paid inthis manner.  3. Estate Plan - Many farming operators choose not tomake cash payments or provide a sweetheart rentalterm. Some simply are not able to afford a cashpayment or to reduce the income stream through arental discount. If compensation cannot be made inany other manner, the remaining option is to try toaccount for unequal contributions by heirs throughthe estate plan. Many factors influence anindividual’s estate plan. Keeping the farm in thefamily, financial viability of the business, and controlof the operation are but a few. In situations where theuncompensated value of the heir’s contribution islarge, there may be a few considerations that providefood for thought.• Joint Ownership of Farm Assets - If the estateplan provides for joint ownership of all heirs, itmay be important to provide control of the farmassets to the farming heir. Such tools as long-termleases, corporations or Limited LiabilityCompanies (LLCs) can provide for equalownership of farm assets, while providing forcontrol of the assets to the farming heir. Termsand exit strategies should always be considered.Long-term business arrangements can producesituations that create unhappy business partnerswho may not be satisfied with relatively lowreturns on high valued land.   • Equal but Separate Ownership of Farm Assets- If the estate plan provides for equal but separateownership of farm assets it may be desirable toprovide a term five- or ten-year lease for the on-farm heir to have the option to rent the land fromthe siblings. This provides the on-farm heir with achance to prepare should the siblings choose to selltheir inheritance. There can also be an option topurchase or first right of refusal provided to thefarming heir, should his/her siblings choose to selltheir inheritance.• Ownership of Farm Assets to Farming HeirOnly - There are many cases in which the farmingheir inherits the farm assets, while other non-farmassets such as investments or life insurance providean inheritance for the non-farming heirs. If farmassets are much larger than non-farm assets, youmay want to consider a shared appreciationagreement that would require the farming heir toshare in the sale of the farm assets should theydecide to cash out before a specified period oftime.A strategy to fairly compensate an individual for theircontribution usually uses a combination of these threemethods - cash payment, sweetheart rental arrangements, aswell as an estate plan. The important issue is not howcompensation will be made, but if compensation will bemade.Dave Goeller, (402) 472-0661Deputy DirectorNorth Central Risk Management Education CenterDepartment of Agricultural EconomicsUniversity of Nebraska-Lincolndgoeller@unl.edu                           

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Does Contribution Equal Compensation?

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