Large owner salary

Discussion in 'Business Operations' started by dmk395, Nov 2, 2002.

  1. Nebraska

    Nebraska LawnSite Senior Member
    Posts: 525

    Maybe I'm confused but doesn't the Owner own the business and if the owner so chooses to take more out it is the Owner's prerogative? Yet any owner to get to high levels being discussed here wouldn't have done so by accident. It comes down to what their objectives and purposes for being in business for themselves are. By it's very nature the owner should be earning more than everyone else; unless your following Ben & Jerry's model.
  2. dr grass

    dr grass Banned
    Posts: 242

    great topic! im going to print this out for future research!!
    thanks all!!!

    shep :blob4:
  3. Lanelle

    Lanelle LawnSite Bronze Member
    Posts: 1,361

    It is the owner's perogative to take as much as he wants and run his company into bankruptcy if he so chooses. Just sad to watch because a lot of people get hurt.
  4. John Allin

    John Allin LawnSite Bronze Member
    Posts: 1,489

    While the owner can take out whatever he/she wants because they are the owner - I believe the owner has a responsibility to the employees to run things in such a fashion so as to keep a viable business entity running. Sucking money out of the business to the point of going under is just plain irresponsible. Once you get to a certain point, the employees come to depend upon the business viability to keep their own standard of living adequate.

    Growing the business through investment back in to the business (retained earnings is one benefit) shows a willingness to support all of those who come to rely on the business entity for their support.

    Now... there is also the issue of Return on Investment (ROI). If the owner has $500,000 invested in his business (equipment purchases - even if depreciated, retained earnings, hard assets [not necessarily good will] and the like), then the owner MUST - in my opinion - receive a fair return on that investment. If the owner took the $500k and invested it conservatively with a broker - he could expect at least a 10% return on that money. Thus, at the very LEAST, a $50,000 yearly paycheck (in ADDITION to a viable wage) is definitely in order. And, the return through the broker is achieved with no real input or work on the part of the 'owner' of that investment, so the return on business assets SHOULD be much greater than the investment with the broker (sort of a risk-reward type thought process). Thus a 15% return on investment in the business is not out of line ($75k on the 1/2 mil investment).

    This investment in the business grows over time, therefore so should the return (yearly pay).

    Nebraska's point is well taken, however I believe there needs to be some responsible approach to the amount withdrawn from the business - and not just a "hey, I want that boat" type philosophy.
  5. Nebraska

    Nebraska LawnSite Senior Member
    Posts: 525

    Absolutely. That is I why refer to by "any owner getting to those levels not by accident". I agree with you that success and future success is by design coupled of course with responsibility. It would be self-defeating for any owner's future success to do otherwise. As such there are built in checks and balances in the system that exists. But it is not up to an employee of the organization to say or not say how much an owner should or shouldn't be compensated. It is up to the owner to keep that information under wraps for the preservation of employee morale.
  6. Lanelle

    Lanelle LawnSite Bronze Member
    Posts: 1,361

    After the owner has sacrificed and driven himself and his people to reach a higher level which may take many years, he may suffer burn-out or an inflated sense of ego which can short circuit the wisdom and 'checks' that kept things on track earlier. Or it could be his family demanding life-style perks in exchange for the meager amount of time he spends with them. I have seen it happen. Its easy to look at it logically but living it may be a different story.
  7. Stonehenge

    Stonehenge LawnSite Bronze Member
    from Midwest
    Posts: 1,277

    This is a good topic.

    Nebraska, it seems to me that an owner taking 31% of gross sales in salary seems high, no matter what the business objectives are.

    And I usually get a kick out catching employees talk about how much money they think I make. They figure I'm already close to being a millionaire. I have to insist that most FT employees, to this point, have made more than me.

    But the nose-to-the-grindstone, dump-everything-back-into-the-biz approach seems to be paying off for us now.
  8. Nebraska

    Nebraska LawnSite Senior Member
    Posts: 525

    That's a sad situation Lanelle. But for the most part the majority of people that have reached that level are going to be responsible enough to know that they are not only going to ruin others in their business that depend upon the organization but also ruin it for themselves and most of all for their own family.
  9. LawnLad

    LawnLad LawnSite Senior Member
    Posts: 738

    This is a good topic - it hits close to home and is thought provoking. Sometimes I wish our employees read this board... and mabye see this thread. But that's not really my problem either.

    I can only ditto that which has already been said by John, Nebraska, Lanelle, and others.

    I don't know of many businesses that have gone under because they haven't self destructed, and it's usually because of the owner that made poor decisions. Beginning with how much he/she draws from the business.
  10. robert payer

    robert payer LawnSite Senior Member
    Posts: 282

    Great conversation!

    It was mentioned that an owners salary of 30% would be to high.

    No one has stated what in their opinion would be ideal?

    I hope that this conversation continues because I think much can be learned.

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