How to Compute Owner 2 Compensation

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.

Owners #2 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 he/she 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 $50,000 then Owner #2’s compensation would be reduced by $50K. e.g.  if Owner #2 took a salary of $100,00 then $50,000 should be entered into the Company Focus Form.

To illustrate:

1. Owner 1 P&L full Compensation – $100,000.00

2. Owner 2 P&L full Compensation – $100,000.00

3. What a one owner company would pay someone that is holding the same positions as Owner 2 – $50,000.00

Owner 2’s compensation for just being an owner – $50,000
(Line 2 MINUS line 3)

Owner 2 Compensation for the Company Focus Data Input Form – $50,000