Owners take risks that employees don’t take, but not all employees understand that. And it doesn’t answer the question of where exactly to draw the lines. How do you think about it? And do you think about it more in good times or in bad times?
Are you kidding? Never. Two reasons: first, I don't make an outlandish amount, and my employees are well paid. Second: When times are hard, I'm the first one to take a pay cut, and in worst cases, lend money back to the company. They don't have that responsibility. So when times are good, and I can take home decent coin, I do it without guilt.
I personally don't like my employees speculating as to how much I take home, so I tell them my income. I also tell them that if they like the way I run things, and want that model to have a ghost of a chance of continuing when I sell the company, then the company had better show solid profits. I've found that being transparent about my income has kept them from assuming that I make much more than I actually do.
I don't think that my model is right for every business. If I was running an ice cream stand that employed minimum wage teenagers, and taking home a million dollars every year, I would never share that. Nothing good can come from flaunting huge income at people who don't have a long term commitment to the company. My employees know that their interests are closely aligned with my interests, and that we succeed or fail together. So my model is working for me.
No - I am a firm believer in offering incentive potential to employees: (1) it was and remains my capital at risk for the business not the employees; (2) employees are hired with a payout (wage only or wage + bonus) for their specified duties that was agreed upon when they accepted the job (should their duties change or not be fulfilled then the pay should likewise be adjusted; (3) Legal risks full on owners not employees. Unless an owner (not officer or executive but owner) is non-essential to business continuation & risk (capital & legal) is on employees instead of owner, the concept of employees being paid equal to the owner is communism.
I used to feel guilty, not because I was paying myself a lot, but because it seemed that my employees thought I was. That guilt went away in 2020, when the risk of having a business became terrifyingly apparent. Because it wasn't just about the lost revenue and salary -- it was about the potential loss of the business that I had given up a corporate paycheck with fully loaded benefits to start, that I had mortgaged my house for, about the financial and emotional investment in something that I brought into the world. That's a lot of risk.
We're a small company with open books, so employees saw that PPP and EIDL money came into and out of the account quickly. And now that business is (mostly) back to health, employees know that revenue coming in is going straight to paying off debt, not into my pocket.
2020 made me feel entitled to the higher salary I will eventually pay myself! (without the guilt)
YES I DO! and not GUILTY per se but I wonder what to do about it? or should I reframe my thinking. If I earn $200k a year and I pay someone on my team $65 k a year it seems weird...yes
As it turns out...I don't make more money than several of my employees due to their commission structure that allows them to make unlimited commissions so our highest paid employees can and do make more than $300K /yr. It doesn't bother me in the least bit...as the company keeps 80% and the employee gets 20% of the gross profit generated on every sale.
This structure keeps them HIGHLY motivated and gives them "golden handcuffs" so I never lose high performing sale people to the competition (not yet at least).
The sales support people in the company (operations / marketing / accounting etc.) have a profit sharing plan in place, so that 80% that the company keeps helps to grow the profit-sharing pool which in turn makes the support employees happy and productive.
Sales grow...profitability grows...which in turn makes the company's valuation grow...which makes me happy (and well-compensated in the end)...
Great question, Loren, love this conversation and look forward to seeing more answers!
MCS does not have employees but will occasionally subcontract out some work. Those subcontractors are fully aware of their compensation is and that the LLC will be upcharging the client so that it can cover expenses. The degree of upcharge is not a concern to the subcontractor - it is a business relationship between MCS and the client.
I'm pretty old-school about this, Loren. If I hire people, it will be a fair and competitive wage commensurate with their experience. They have no business running my business and if they believe they are treated unfairly in terms of salary, they are more than welcome to seek employment elsewhere. I will not open my books anyone whom I am not required to by regulation. So, to answer the overall question - no I don't/won't feel guilty one bit.
That's the nice thing about consulting - they can make as much money as they want to work for.