What Should Business Owners Get Paid?

Running a construction company is hard work. There are lots of moving parts, decisions to make, people to supervise, customers to coordinate, prices to calculate and responsibilities to handle. All of these responsibilities require lots of time, energy, effort, leadership and dedication. But what is the owner’s position worth in terms of salary, benefits and compensation? You would never hire a carpenter and then ask him or her to work for less than the going pay rate. In fact, if you were underpaying him, he likely wouldn’t perform at his highest potential. Being underpaid or compensated unfairly results in managers and employees producing less than they are capable of, and ultimately creates poor attitudes among the team. The same is true for underpaid construction company owners who run their companies, act as president and general manager, are in charge of getting everything done and are responsible for making a profit. Most company owners work 50 to 60 hours or more per week and are held accountable for making payroll, paying the bills, winning enough work to keep everyone working at maximum capacity, finishing projects on time and under budget, keeping customers happy and improving bottom-line results. So how much should company owners really be paid for their day-to-day efforts?

Underpaid & Overworked

I often observe company owners and presidents who undercompensate and underpay themselves. According to the job search website indeed.com, in 2016, the average construction business owner makes only $66,000 per year; while construction company vice presidents average $117,000 annual salary, senior project managers average $102,000 and project managers average $79,000. These averages and salaries range greatly based on company size, location and responsibilities. Based on these figures, it’s obvious most owners acting as president pay themselves much less than they are actually worth. In many cases, owners could go out and get hired as a vice president or project manager for a competing company and make more money than they are currently paying themselves. When you underpay yourself, you sacrifice your lifestyle and family for less than you should receive. This drains your energy and leaves you with less money than you deserve for the effort you expend. And when you feel deprived and don’t have enough money to enjoy your life, you cannot do what you want to be successful.

Get a Salary for What You Do

Compensation should equal your value earned for results, responsibilities and accountabilities. Everyone should get paid what they are worth for the work they do. A construction company president should be compensated a fair market pay package determined by what it would cost to hire someone to run and manage a similarly sized company. When asked, I tell business owners to pay themselves what it would cost to hire someone to do exactly what they do if they got sick or injured and couldn’t come into the office for an extended period of time. In most instances, this amount is significantly more than they are currently paying themselves. Many company owners tell me they cannot afford to pay themselves what they are worth. If your company can’t afford to pay the president a market pay rate, then the president isn’t running the company in a profitable way and it is time for a new direction, a different business plan and new leadership at the top. Also, when your cost of doing business is less than it should be because of a low salary, you are charging customers less than they should pay, too. The only loser in this game is the president and the owners of the company. To make matters worse, certified public accountants often tell their clients to avoid taxes at all costs. This strategy keeps the owner’s pay low, encourages companies to not make much profit and doesn’t require the company to charge higher prices and obtain better customers or seek higher margins. Paying taxes means you are making money. The higher your taxes, the better your business is doing. The key is to focus on making more money, rather than avoiding taxes.

No Profit Equals No Future

Pay is compensation for work performed. Profit is not the owner’s salary or compensation. Profit comes after paying people to do work. Profit is your return for what you own and your reward for taking risk as a business owner. The owner’s goal is to make a profit or return on investment. Without profit, you won’t have a business for long. Profit supports business growth and expansion. Profit is the reward for running your business professionally. Profit can be shared with key employees as an incentive. Profit reserves can help you through the tough times. Profit allows investment in exciting new ventures. Profit shows you how much money your business actually makes. Profit is the number one indicator of your company president’s ability to manage the business. Net profit is what remains after paying all your bills, including paying a reasonable salary for the company president. Profit is everything left over after you have earned your receivables, posted your job cost expenses and overhead bills and paid the owner’s salary for the work the owner actually performed. Salary is payment or compensation for performing work, and it absolutely must be included in your annual overhead expenses or job costs.

Give the President a Raise

Most construction business owners acting as company president don’t pay themselves what they are worth. This problem also indicates the president doesn’t know how to manage a company, grow the business with high-enough margins or focus on priorities that will allow the company to make a real profit. In addition, they often pay themselves only after everyone else gets paid and there is some money left over. To determine how much money the president of your company should be compensated, ask what he or she could get paid for running another, similar company as president or general manager. Make sure you pay the president a good monthly salary with full benefits for the accountabilities, responsibilities and pressure they handle regularly. Business owners who run their companies should make at least 20 percent more than what they could get on the open market working for someone else. The extra pay provides a feeling of value which allows them to stay focused on bigger priorities like taking the company to the next level. As the business grows, the president’s pay should increase along with the magnitude of their responsibilities and size of the operation. Construction company owners who pay themselves what they are worth for the work they do feel like they are getting a valuable return on their time. This gives them a positive attitude and encourages them to continue working hard to make the company better. What is the right pay for your company owner? Pay the right amount and you will see the right results.