Owner, Manage Thyself, Part I - Tie Your Compensation to Your Different Roles

By Andrew J. Birol, President, Birol Growth Consulting, Inc.

You have a good business and yet just when you have a great month, the next one turns sour. Even worse, it takes another two months just to get back on track. The cause may vary, perhaps this time a key employee quit, production screwed up or the competition stole another client. While it is never the same reason, you find you spend most of your time managing through another crisis. Your business life begins to feel like Bill Murray’s in the movie “Ground Hog Day.” If it were not so serious, you would laugh at yourself. In the immortal words of Rosanne Rosannadanna, “It’s always something.”

As the leader, owner and in most cases the actual service or product your firm sells, you are your business. So let’s face some cold hard truth. If it is always something, it is you. Some part of your leadership, vision, management style or ability to implement tactics is holding your company back. Your friends, advisors, and peers may tell you this is naturally part of being an entrepreneur but given your results, you know it is not acceptable. Worse, yet, your other options for fixing the problem are few. Hiring a professional manager or working harder are not options. And the ultimate decision, selling out or giving someone else control, will destroy your dream and your ego.

So, what can you do to manage yourself to greater success? Here are the first two of five key steps. The next three steps will appear in next month’s newsletter.

  1. Recognize your three roles:
    • As the owner, you are the ultimate protector of the firm’s reputation, wealth and purpose.
    • In your leadership or presidential role, you are responsible for setting direction, achieving results and managing everyone and everything.
    • As employee #1, you are also the icon for providing the company’s key product or service. To your clients, you are what they are buying. You must sell yourself, deliver yourself and get paid for who you are. As you are the definition of what you sell, you must continually improve and raise your personal standards.
  2. Compensate yourself in three ways:
    • As an owner, reward yourself for building wealth. Pay yourself an owner’s salary or distribution, increase your insurance and investment planning and gradually extract equity from the business as your reward for making your company richer. Tie your reward directly to how much wealth your business has gained. Obviously company cars and other perks can be a tax effective approach to doing this well. Your accountants and financial advisors will help you here.
    • As the president or leader, your goal is to increase sales and profitability. If you have the discipline, you can hold yourself completely accountable for results. To do so, consider yourself an employee in terms of compensation. Shop your market place and pay yourself according to what a non-owner president would receive. Clearly you would earn a base salary, significant incentive compensation and some deferred income. A leader who hits goals is well paid and one who doesn’t is fired.
    • As the leader/president who increased sales by 10% and profits by 8%, pay yourself $200,000
    • As the service provider who reinvented a new process, created three products and gave five speeches, pay yourself another $100,000.

        So, if you were successful in all three roles, you would have proudly earned $400,000. If you were not as effective in one or more of your jobs, cut your compensation for that part. By linking your pay to each of your roles, you can stay connected to all that you must do.

        Contrary to what you may feel or hear, you are never completely successful or a total zero. Just like everyone else in your organization, you have your good points and bad. The only difference is that as an entrepreneur you have no boss. Therefore, to make a difference, you must manage yourself. And doing so through your compensation is a great way to stay honest. Next month we will discuss how to spend your time to make the greatest impact. Stay tuned.

      Articles by Birol Growth Consulting are © copyrighted and all rights are reserved. However, articles may be reprinted with prior written consent if attribution is included as follows:

      © Copyrighted by Andrew J. Birol, President of Birol Growth Consulting, who helps owners grow their businesses by growing their Best and Highest Use ®. Andy can be reached at (412) 973-2080, by email at abirol@andybirol.com, or on the web at www.andybirol.com.

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