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 accountabilities 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?
You would never hire a carpenter and ask him or her to work for less than the going pay rate for the results he was producing. In fact, if you were underpaying him, he wouldn’t likely be maximizing his effort or performing at his highest level. Being underpaid or not compensated fairly results in managers and employees producing less than they are capable of and creates bad poor 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 responsible to make a profit. Most company owners work fifty to sixty hours or more per week, are 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 be paid for their efforts?
Are you underpaid and overworked?
I often observe construction company owners or presidents under-compensating and underpaying themselves salaries less than they’re worth. They almost boast low pay as a badge of honor when they sacrifice and 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’s obvious most company owners acting as president pay themselves much less than they are worth.
As you can see, on average owners are underpaid for the value they provide. 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. I’m sure they don’t want to be underpaid and undervalued. When you underpay yourself, you sacrifice your life, 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 poor and 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 or salary equals your value earned for results, responsibilities, and accountabilities. Everyone should get paid what they’re worth for the work they do – what they’re accountable for, the responsibilities they manage, the tasks they perform, and the results they produce. 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 similar size company. 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 company 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 and it is time for a new direction, a different business plan, or new leadership at the top. Also, when your cost of doing business is less than it should be because of low salaries, you’re charging customers less than they should pay too. The only loser in this game is the president and owners of the company.
And to make matters worse, certified public accountants often tell their clients to avoid taxes at all costs. This strategy keeps the company 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. 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 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 reward for running your business professionally. Profit can be shared with key employees as an incentive. Profit reserves can help you through tough times. Profit allows investment in exciting new ventures. Profit shows you how much money your business makes. 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 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. They also often pay themselves after everyone else gets paid and there’s some money left over. 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 of your company 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% more than what they could get on the open market working for someone else. The extra pay is for the hassle, sleepless nights, and 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 right 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 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.
About the Author
George Hedley CSP CPBC is a certified professional construction BIZCOACH and popular industry speaker. He helps contractors grow, make more profit, build management teams, improve field production, and get their businesses to work for them. He is the best-selling author of “Get Your Construction Business To Always Make A Profit!” available on Amazon.com. E-mail GH@HardhatPresentations.com to sign-up for his free e-newsletter, start a personalized BIZCOACH program, attend a 2 day BIZ-BUILDER Boot Camp, or get a discount at www.HardhatBIZSCHOOL.com online university for contractors.
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