How to Compute Owner 2 Compensation
To compare the compensation of a one owner company and a two owner company, we must first “Normalize” the compensation of Owner 2.
As with Owner 1, only figures from the P&L are used for the Company Focus Data Input Form.
Owner #2’s compensation for the Company Focus Data Form is to be the TOTAL of all payments made (salary and salary equivalent, not benefits, that show on the P&L) to Owner #2 OVER AND ABOVE the standard payment s/he would receive for their designated job title.
For example:
If Owner #2 is a production manager and the going average rate in the market for that position is $55,000, then Owner #2’s compensation would be reduced by $55K.
e.g. If Owner #2 took a salary of $100,00 then $45,000 should be entered into the Company Focus Form.
To illustrate:
1. Owner 1 P&L full Compensation = $100,000
2. Owner 2 P&L full Compensation = $100,000
3. Production Manager “market rate” = $55,000
Line 3 is what a “one-owner” company would pay someone that is holding the same position as Owner 2 ($55,000.00)
Therefore, Owner 2’s comp. for “just being an owner” = $45,000
(Line 2 MINUS line 3)
In this example, the “Owner 2 Compensation” for the Company Focus Data Input Form = $45,000