Owner’s Compensation

- Hey everybody! Drew McLellan here from Agency Management Institute. This week, yet again, I'm coming to you from my home. We're standing in my family room. And before I tell you about this week's topic, big shout-out and thank you to Craig for the Lehigh Valley IronPigs T-shirt. Go IronPigs! Thanks, Craig, for the shirt. So, behind me is a picture that has hung over my sofa for a really long time. And it's basically a picture of two deck chairs looking out over the ocean. And the picture for me is calming. It's peaceful. Being on or near a large body of water and, for me, being able to walk the shore of that body of water is a huge reward for me of work well done and time spent giving to others. So it's sort of a reminder to me that it's important that I keep in mind that, A: I need to keep my bucket filled up, but, B: That there are certain things that feel like a huge reward to me. So that's what I want to talk to you about this week is the idea of rewards and in particular, the idea of reward as it comes to or relates to how we pay ourselves. So I've had several people asking me questions, I think because of the PPP loan here in the States, around the way agency owners compensate themselves. And I think you need to recognize that you take money out of your agency as an agency owner in two ways for the two jobs that you have inside the agency. Your salary, your W-2 income is a reward for the work you do, the day job that you do, the work you do inside the agency as the CEO, as the president. Maybe you might be serving as creative director. Whatever your day-to-day job is in terms of keeping the agency running well, managed well, clients are happy, employees are happy, that is your W-2 income, that's the correlation there. If you didn't do that work, someone else would have to do it, and you would have to pay them a salary to do it, which is why it's important for your salary to be reflective of a dollar amount that is reasonable, that you would pay someone else to do the work you're doing. Your dividends or your distributions are the reward you get for taking the risk of owning a business. So that comes out of the profits of the business. It's not guaranteed. It's not the same dollar amount every year. But that's the second way you compensate yourself, but that's your reward as an agency owner, that's the second hat you wear. We wear two hats. We do our day job, and we are the owner of the agency. And both of those roles get paid, but they get paid in different ways. So for some of you, you may have worked with an accountant who has your salary super low, much lower than you would ever be able to hire someone else to do your work. There are a couple of risks with that. Number one, if the IRS audits you, or your state in terms of your state employment, because basically they're all not getting their cut of your salary if your salary is disproportionately too low. So they're going to fine you or penalize you for underpaying yourself. The other reason for many of you why you need to be thoughtful about the salary that you pay yourself, the W-2 income, is because it influences your Social Security if you're here in the States, and it also influences what you can put away for retirement. So be mindful as you're mapping out the way you get compensated that, number one, both ends of your role, so both parts of your role, get paid, and they get paid in separate ways, but that you're also paying yourself the W-2 income that's appropriate and then the dividend income that your company has earned and you've earned the right to get by taking that risk. All right? So in both cases, rewards, but for different roles that you play inside the agency, and it's important that you get the ratios between those two roles and the payments tied to them correct. All right? I'll see you next week.