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 require lots of time, energy, effort, leadership and dedication. Therefore, the question is, what’s the owner’s position worth in terms of salary, benefits and compensation? Being underpaid or not compensated fairly results in managers and employees producing less than they are capable of and creates bad attitudes amongst 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 to make a profit. Most company owners work 50 to 60 hours or more per week, are making payroll, paying the bills, winning enough work to keep everyone working, finishing projects on time and under budget, and improving bottom-line results. So how much should owners be paid for their efforts?
Are You Underpaid and Overworked?
I often observe construction company owners underpaying themselves. They almost boast low pay as a badge of honor when they don’t pay themselves what they’re worth. According to the job search website indeed.com, in 2017 the average construction owner makes only $67,000 per year; while construction company vice presidents average $122,000 annual salary, senior project managers average $105,000, and project managers average $84,000. These are national averages and salaries range greatly based on company size, location and responsibilities. Based on these figures, it seems most company owners acting as president pay themselves much less than they are worth.
In most 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’re currently paying themselves without all the risk. The reason owners are in business is to achieve the results they want. When you underpay yourself, you sacrifice your life, lifestyle and family. This drains your energy and leaves you with less money than you deserve for the effort you expend. And when don’t have enough money to enjoy your life, you can’t do what you want to do to be successful.
You Get a Salary for What You Do!
Compensation equals your value earned for results, responsibilities and accountabilities. Everyone should get paid what they’re worth for the work they do. When asked, I tell construction 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 owners tell me they can’t afford to pay themselves what they’re worth. This translates into “my company doesn’t make enough money and we’re really operating at a loss!” 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. When your cost of doing business is less than it should be, you’re charging customers less than they should pay too. The only loser in this game is the president and owners of the company.
No Profit Equals No Future!
Pay is compensation for work performed. Profit is not an owner’s salary or compensation. Profit comes after paying people to do work. Profit is return for what you own and reward for taking risk as a business owner. Business owners who run their companies must get paid for the work they do. The owner’s goal is to make a profit or return on investment. Without profit, you won’t have a business for long. Profit feeds and supports business growth and expansion. Profit is a reward for running your business professionally. Profit can be shared as an incentive. Profit reserves can help you through tough times. Profit allows investment in new ventures. Profit is the number one indicator of your company president’s ability to lead, run and manage the business.
Net profit is what’s left after paying all your bills including paying a reasonable fair market value salary for the company president. Profit is everything left over after you’ve earned your receivables, posted your job cost expenses and overhead bills, and paid the owner’s salary for the work he or she performed. Salary is pay or compensation for performing and doing work and it 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’re worth. This indicates the president doesn’t know how to manage a company, grow the business with high enough margins, or focus on priorities that will make a real profit. They also often pay themselves after everyone else gets paid. This is also an indicator of a bad business that doesn’t make enough money to be viable.
To determine how much money the president should be compensated, ask what he or she could get paid (including salary, burden, insurance, retirement, bonuses, car allowance, gas, and vacation) for running another similar company as their president or general manager. Make sure you pay the president a good salary monthly with full benefits for the accountabilities, responsibilities and pressure they handle. 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 is for the hassle and sleepless nights, while provides a feeling of value that allows them to stay focused on taking the company to the next level. As the business grows, the president’s pay should increase right along with the magnitude of his or her responsibilities and size of the operation.
Company owners who pay themselves what they are worth for the work they do, feel like they are getting a return on their time. This gives them a positive attitude and encourages them to continue working hard to make the company better. What’s the right pay for your company owner? Pay the right amount and you will see the results.
George Hedley, CSP, CPBC, helps contractors grow and profit as a professional business coach, popular speaker and peer group leader. He is the author of “Get Your Construction Business to Always Make a Profit!” and “Hardhat BIZSCHOOL Online University” available on his website. Visit www.hardhatbizschool.com for more information.