Managing Employees and HR

Taking One for the Dream: Paying Yourself Nothing

SBOCTeam — Thu, 02 Jul 2009 13:15:00 GMT

When, if ever, does it make sense for an entrepreneur to stop taking a salary?

By Reed Richardson

It's a long-held rule of running your own small business: don't forget to pay yourself. However, in an upside-down economy that continually provides exceptions to all the old rules, many entrepreneurs are finding that paying themselves is yet another piece of conventional wisdom worthy of reconsideration. But before you go cold turkey on salary, it's important to ask yourself several questions to make sure you don't unnecessarily risk both your own future as well as your company's.

What are the rules about how much salary a small business owner can/must take?

For most entrepreneurs, there really are no hard and fast legal rules about what they can pay themselves. As a general rule, it's best to pay yourself close to a "market rate" salary for your profession or industry. In fact, a good business plan should already figure in an owner's paycheck as a top-line expense because deferring that salary is, in effect, ignoring a real liability of the company. Still, many sole proprietor and general partnership startups launch with no one on the official payroll and some will end up paying their first few employees a salary before their owners see a substantial return.

Incorporated small businesses, on the other hand, have much clearer rules. Even the founder/owner of a C Corporation is considered a company employee, and so, according to tax laws, he or she must draw a market rate salary. A small business CEO that draws a suspiciously low or zero salary is in danger of arousing interest from the IRS, which might suspect the company of trying to avoid paying its fair share of employment taxes. (Too-high salaries also raise tax alarms, as they could be seen as a way of disguising dividend payments to small business owners.)

Is it really necessary to take $0 as salary?

While salary.com's 2007 Small Business Executive Compensation Index found that the median annual salary for a small business owner was $233,500, most budding entrepreneurs make far less than that. As a result, going "all-in" and accepting no salary to help your struggling startup survive might seem even more necessary, but, by the same token, a consistently lower annual salary also suggests having less money socked away to go income-free for long periods of time.

Instead, small business owners could consider taking a significant pay cut rather than a pay freeze. One tactic might be accepting only enough salary to pay your personal overhead-mortgage/rent, food, car loan, light bill, etc.-and forego any other investing or saving for retirement. This decision particularly makes sense if you're also asking employees to sacrifice a percentage of their salary to buoy your business's chances in tough times. After all, you would never expect them to work everyday for no pay, so to be fair, you shouldn't ask that of yourself either. Also, it's important to recognize the singular role that many small business owners' personal credit score plays in their company's ability to access capital-wreck your own credit rating by skipping a few car payments and, in effect, you've wrecked your company's credit as well.

If I do decide to forego all salary, am I crazy?

Any entrepreneur that foregoes any salary in the early days of his or her company should never feel alone. But in this bleak economic climate, even stable, well-established business owners are joining the club. In fact, a recent American Express Small Business Monitor survey (http://home3.americanexpress.com/corp/pc/2009/mtr.asp) found that 30 percent of small business owners were not currently taking any salary and 27 percent had done the next best thing, by enlisting a family member to work at the business for free. Retail entrepreneurs, in particular, were more than willing to sacrifice a personal paycheck, as more than four in ten-42%-reported taking no salary to help their business survive the recession.

Taking no salary functions like a periodic personal loan you give back to your business. And in an era in which many of the traditional fallback sources of capital for budding entrepreneurs-home equity lines of credit and personal credit cards-have dried up, temporarily recycling all of your salary back into your company offers the advantages of being both simple and immediate. By helping your business's cash flow remain robust enough to meet payroll, keep up with sales demand, and pay vendors in a timely manner, your company will remain attractive to its customers and suppliers, while building solidarity and loyalty among its employees. And by preserving your business's morale, reputation, and credit position, this short-term sacrifice makes your company more attractive to those constituencies that often determine long-term growth and success-lending banks and equity investors.

What are the broader drawbacks and disadvantages to taking a $0 salary?

Make no mistake, if foregoing a paycheck becomes more than a short-term, emergency measure, you are no longer running a business as much as you're running a benevolent employment agency. So, if after several months of no salary your company's fortunes still haven't turned around, that might be a signal that it's time to seriously examine the long-term sustainability of your business. This is particularly true if multiple business partners are subsidizing the company by refusing a salary. In addition, potential capital partners like banks or equity investors will be reluctant to inject any capital in a company that continues to rely upon this cash crutch to survive, even if the money is being plowed back into research and development or expanded production.

From a personal standpoint, taking no salary represents a dangerous, slippery slope for small business owners. For dedicated entrepreneurs, forgoing a paycheck for a few weeks or even a few months can seem like a small price to pay to keep a dream alive. But at some point, reality must set in. Even if your only retirement plan involves selling off your business in forty years, that future sale of your successful business won't put food on the table today. After all, if your company sinks and ends up bankrupt, you can always start another one someday, but that's much harder if your personal fortune goes down with it.

Get Out of the Office

SBOCTeam — Tue, 10 Feb 2009 16:06:00 GMT

Providing your employees with a reliable social support system is a key way to ensuring they stay happy and productive

By Max Berry

The link between work stress and serious depression should be a concern for every small business owner, but the way to keep your employees happy and productive may be simpler than you think. A 2007 study conducted by researchers from the University of Rochester Medical Center-and subsequently published in the American Journal of Public Health-found that, while five percent of those surveyed had struggled with serious depression, employees who felt socially supported at work were far less likely to be afflicted. Scheduling some social time for you and your coworkers away from the office is an excellent way to keep your own support system strong.

No Job is ‘Just a Job'
"Our work defines who we are. It defines you in a way you don't realize," says Dr. Emma Robertson-Blackmore, an Assistant Professor of Psychiatry at the University of Rochester and one of the leaders of the medical center's study. With so much of a person's life spent at work, the dangers of feeling isolated or unsupported at the office are very real. Employees who are unhappy in their lives are going to be unhappy in their work. That equates to unproductive time at the office and an increased number of sick days, both of which spell bad news for office morale and a company's bottom line.

Employers are often leery of encouraging office fraternization, fearing it could become a distraction. However, an office friendship is far less treacherous a distraction than isolation or unhappiness. As Robertson-Blackmore puts it, "Having someone to blow off steam with is an instant pick-me-up."

And, while the office may not be the ideal place for blowing off steam, Robertson-Blackmore contends that, wherever the steam is released, being able to release it with coworkers is important. "If you tell a spouse or family member about something you're going through at work, obviously they'll listen to you," she says. "But they're not in your work environment. [Your coworkers] get where you're coming from."

Oh, The Places You Could Go
To both encourage personal bonds between coworkers and perhaps pave the way for more socializing outside the office, consider taking your team on regular field trips. Where you go will depend on who's going with you, but here are a few ideas.

The company picnic is a tradition for a reason. A picnic is informal and may make for a good first outing, since no one will be intimidated or inhibited by the surroundings. This goes doubly for employees' family members who, presumably, will be meeting for the first time. Picnics can also be potluck, which makes for an inexpensive day.

A formal sit-down dinner at a nice restaurant may be appropriate once coworkers have already had a chance to bond and are comfortable enough with one another to enjoy the more upscale environs. A nice dinner is also a good way to celebrate an achievement at work. Plus, employees with families may appreciate the chance to have a kid-free night out.

If you are looking to include the kids, an amusement park is a viable option. Many offer discount packages for large groups or corporate events. Note, however, that roller coasters and water rides aren't everybody's speed. Gauge your staff's enthusiasm before booking the group package.

A ball game is the perfect idea for the sports fans on your staff, and even the non-sports fans will likely be interested in taking in the atmosphere. Many companies also take part in office sports leagues. This can be excellent team-building for the right group, but a word of caution: Many of your employees aren't athletic, and many others may possess a heartier competitive streak than their coworkers. Both scenarios can lead to more division than unity amongst your staff. Tread carefully.

If you're looking to bring some culture into the equation, consider a concert or a play. Many people don't make time for cultural events on their own, and would appreciate the thought. This is another good option for a first foray into extra-office socializing since it eliminates the need for small talk at the start of the evening and gives coworkers an instant conversation starter once the show is over.

A Supportive Home
Still, for any of these activities to be successful, social support must begin inside the office. Robertson-Blackmore advocates open channels of communication between coworkers and, perhaps even more importantly, employees and managers. "It comes back to a supervisor, someone invested in what you do," she says. "Being aware of an employee's needs can make such a difference."

The workplace need not turn into an arena for venting personal problems, but the knowledge that a certain degree of moral support exists is important, as is making the conscious effort to foster that support. "The facts of a workplace play a role in the health and wellbeing of employees," says Robertson-Blackmore. "A supervisor or manager has to make the [work] environment as supportive as possible so that their staff will be as productive as possible."

The Buck Stops Here

SBOCTeam — Thu, 17 Apr 2008 13:03:00 GMT

By Chris Freeburn

Setting your employees' salaries can be a challenging task for first time employers, or even established employers who are recruiting for a newly created position or trying to keep the employees they already have. Salaries that are too low will fail to attract new qualified candidates, and may cause current employees to begin to look to your competitors. Conversely, salaries that are too high will put a strain on the business's budget and may disgruntle other employees, if they are not distributed fairly.

Figure out who's doing what
Before you start trying to set the right salary, it's a good idea to define the job. "Employees who work for small business often wear many hats," says Ann Swigart, president of Small Business Recruiting Solutions. "And jobs often change over time, with people taking on new responsibilities or moving into new roles altogether." The person you hired to keep the office's computers running may also be handling data entry and answering the company's telephones as well. Figuring out exactly what each person does, will help you decide how much they should be paid and how their salary should be adjusted over succeeding years as their workload increases or remains the same.

Research, research, research
"Generally, the best way to figure out the right salary for a given job is to find out what other companies in your area are paying for the same work," says Swigart. One useful method of finding out what your competitors are paying their employees is to network with managers or owners of similar businesses in your area and learn what salaries they set for positions like the ones in your company. Consulting a local accountant can also be helpful since he or she probably has a grasp on the typical salary range for most jobs in your community. Regional trade associations usually publish surveys of salaries for various positions within their fields, though salary levels can sometimes vary significantly between even neighboring communities. The U.S. Bureau of Labor Statistics (www.bls.gov) publishes a nationwide survey broken down by region and occupation, but the data is often dated. Consulting the employment listings in your local newspaper or employment office is also a good idea since many such listings will offer a suggested salary, providing a yardstick with which to assess your contemplated offer.

Setting the salary for a new hire
When looking at add a new employee, you should set a potential salary range with a defined floor and ceiling, rather than simply a specific number. This gives you room to negotiate with prospective employees, permitting you to adjust your final salary offer based on the particular applicant's experience and skills.

Given the time constraints and complexities of modern life, potential applicants may be interested in more than just a straight salary quote. You should emphasize any benefits that may accompany a position in addition to the base salary. Perks like flexible work hours, health insurance, bonuses, childcare, compensation for transportation costs and retirement plans, if available, should be mentioned in tandem with any proposed salary. It is also advisable to budget ahead when setting a new employee's salary. Remember to include room for future raises in the budget.

Finally, it's a good idea to spell out all the details of a new employee's salary and perks in an offer letter, which should state the employee's start date, salary, benefits, bonuses and vacation time. Putting these elements into writing can prevent future misunderstandings and disputes between you and your new employee.

Chris Freeburn is an associate writer/editor for Priority magazine.

Keep Them Smiling

SBOCTeam — Fri, 26 Oct 2007 12:05:00 GMT

Happy employees and satisfied customers are two of the invaluable benefits of an effective incentive and recognition program
By Chris Freeburn

Not long ago, an engineering and manufacturing company on the East Coast underwent the lengthy and complicated process of earning ISO certification. A team of nearly 50 employees from the company worked for more than eighteen months on the difficult project, often staying late and coming in on weekends. Finally, upon the successful completion of the massive undertaking, they were all ushered into a conference room, where the company's CEO grandly unveiled his expression of thanks and recognition for all of their hard work and extra effort: a pile of plastic coffee mugs. Needless to say, the response was less than enthusiastic.

"Soon, those coffee mugs became a facetious symbol of quality in that company," says incentive and recognition consultant Adrian Gostick, whose company, O.C. Tanner (octanner.com), was eventually brought in to help turn around employee loyalty and performance after the coffee mug debacle. "This notion of ‘Hey, I'm paying them aren't I?' just does not buy commitment these days and that's why companies that adopt this attitude can't figure out why their workers keep leaving."

Still, he notes that many companies that would never consider operating without a comprehensive business plan or sales strategy continue to put little thought, if any, into incentive and recognition programs. As co-author of the motivational guide A Carrot a Day (Gibbs Smith, $12.95), Gostick warns that businesses that don't take the time to reward their employees risk sacrificing their future in the current business climate, where the Bureau of Labor Statistics estimates that nearly one-quarter of the U.S. workforce changes jobs every year. "Recognition is the lifeblood of innovation, retention, and productivity," he writes in his best-selling book. "It's what keeps employees motivated during the tough times. And it's why they will still be devoted when things improve."

Determine Your Company's Core Values and Goals
It may seem obvious that before you can begin to reward and motivate your employees, you should figure out what values and goals you are trying to promote, but many times, businesses blithely skip this crucial step. As a startling testament to this fact, a recent Franklin Covey study found that only 44 percent of the employees surveyed said that they felt their employer had effectively communicated their company's goals to them.

Even the companies that do take the time to complete this important step often stumble. "You want to remember that your goal is to recognize and reward behaviors, not individuals," says Gostick, who has counseled both small businesses and Fortune 500 companies. "Every organization has its top performers, but that doesn't mean that employees at every level aren't living up to your company's core values. A common mistake I've seen in my clients is they build a program that just ends up rewarding the boss's favorite employees. This can breed resentment and erode morale."

Instead, the Salt Lake City-based O.C. Tanner encourages its business clients, when they are building their value and goals, to also identify specific day-to-day tasks that support these goals. According to Gostick, this strategy allows businesses to better reinforce what they are trying to achieve, while providing more opportunities to recognize those employees who are going above and beyond on more mundane tasks, like answering customer calls promptly or maintaining efficiency by keeping a well-organized workstation. Business owners are then able to recognize these employees with a little perk, such as a week of using a coveted parking spot near the front door or an afternoon off to pick up their kids from school.

Change Behavior with Incentives
"An incentive is a reward known to employees in advance that attempts to change their behavior in attaining a goal," says Doug Press, president of the White Plains, New York-based company The Incentive Group (incentivegroup.com). And while Press acknowledges that incentive programs are traditionally associated with sales promotions, he notes that they can be structured to address almost any workplace function from marketing to safety to attendance. "If, as a small business owner, you've ever said ‘I wish I could get my employees or customers to do blank,' just fill in the blank and an incentive program can be designed around it."

He contrasts incentive programs with those that target "recognition," which typically involve an honor or status conferred upon an employee for an accomplishment like length of service. The distinction between the two is more than semantic. A plaque or certificate that might be suitable to acknowledge an employee's tenure will not be sufficient impetus to get him or her to double their annual sales numbers. "That is the most common problem that small businesses face when setting up an incentive program; they underfund the rewards and then they don't get the results they were looking for," Press adds.

To properly motivate people to change long-held habits or crack into a tough new market requires more upscale items. The Incentive Group's online incentives catalog offers the kinds of big-ticket items-from jewelry to fine furniture to golf and ski vacations-that he says are necessary to really push employees to go above and beyond. "The most motivating factor in an incentive program is for the worker to aspirationally identify with achieving the reward. That feeling of ‘I have to have that' needs to be there for it to work," he says.

Still, Press acknowledges that many small business owners who would gladly reward their workers with these types of gifts often balk at the prospect of devoting large amounts of time and money to set up and administer an incentive program. For those small businesses that remain doubtful, however, it is important to note that most incentives programs, even those with modest goals, can often pay dividends far beyond the program's original intentions.
For example, the Indiana-based manufacturing company Workhorse Custom Chassis recently implemented a campaign to expand sales for their step van and recreational vehicle chassis business. To entice the nationwide network of dealer sales representatives to participate and recommend their product, they adopted a prepaid debit card incentive program run by the Atlanta-based incentive and recognition company, Performance Systems Group (achievacard.com).

As dealers from across the country gained new leads, they faxed the details into Performance Systems, which compiled the information into a marketing database while sending back an acknowledgment to the dealers. A debit card was then quickly sent out to each dealer, simultaneously activated and credited for each chassis that they eventually sold.
Not only did Workhorse quickly achieve its primary goals of jumpstarting sales, but the program also reinforced brand recognition and increased marketing reach as well. "The fact that we were able to establish a dealer database alone would justify the promotion," says Tony Monda, Workhorse's director of marketing. "Now we are able to contact dealer sales representatives directly with inexpensive broadcast faxes, and as we add their email addresses, send HTML emails."

Individualized Recognition
"Every employee is different," says Steve Harper, an entrepreneurship professor at the University of North Carolina, Wilmington. "What turns on one employee may be neutral to the second, and actually frustrating to the third, if the company is committing resources to a rewards program that could be incorporated into better pay." An incentive program designed without specific input from the employees who will be reaping the rewards is a coffee mug fiasco waiting to happen. To avoid this, Harper suggests making your employees "co-architects" of the plan. "Try the plan with a group of volunteers on a pilot basis," he says. "Learn from it. Get their input again."

If the non-scientific survey conducted in October 2005 by Dave Gray, founder and CEO of St. Louis, Missouri-based communication design company Xplane is any indication, Harper's strategy could be a breath of fresh air for employees. Gray found that 65 percent of those surveyed had no idea how-or if-they would be rewarded for meeting or beating their performance goals. The same study found that 52 percent of those employees surveyed planned on leaving their jobs within two years. Effectively communicating to your employees that they are working toward something, and that they have a say in what that something is, can engender loyalty and prevent costly turnover. Listening to what your employees have to say will also keep the incentive plan from feeling like a gimmick designed more for the sake of increasing productivity than showing appreciation.

For those business owners without the time or resources to develop an elaborate incentive program, Judy Papalard, vice president of sales for Card Express (cardex.com), has a solution. Card Express offers a product that gives employees the final say in how they're rewarded. For a low set-up fee, Card Express's customizable, pre-paid Visa and MasterCard debit cards let companies show their appreciation with a gift that can be used at millions of locations nationwide, making them much more flexible than a standard store gift certificate. "We allow our clients to print individual messages on the front of each card or brand it with their company logo as well," Papalard notes. "That way, when an employee goes out and uses the card, it reinforces company loyalty with the worker and, for the employer, it's like free advertising."

However you choose to reward your employees, Gostick's primary piece of advice is not to wait too long to do it. "Most turnover in companies takes place between the first and second years," he notes. "Yet, most small businesses on a tight budget might not formally recognize employees until they reach a sales level or service tenure that takes decades to build up." But by then, it is often too late. "You might think recognition is all about the past," Gostick says, "but it's really all about the future." And for a small business, whose most important assets are often its people, properly motivating and recognizing employees might just be the best method to ensure the future is bright.

Better Than Cash
Cash rewards don't make much of an impression on employees, a fact supported by a 2005 incentives industry study which found 60% of those workers surveyed viewed cash rewards as merely part of their normal salary, instead of as recognition for exceptional performance. A similar survey conducted in 1999 showed that 29% of employees who received a cash reward used the money for bills, while only 9% actually used it to reward themselves. So why not use the cash to buy them something they'll hold onto?

Employees fond of handing out business cards are a great source of free advertising. Encourage the practice by rewarding simple jobs well done with a stylish business card holder. In addition to storing the cards neatly, the cases help ensure that employees travel with a surplus of business cards, rather than the two or three that will fit in a wallet or purse. Holders are available for under $20 in an assortment of designs (giftsforprofessionals.com).

In the second quarter of 2006, 76% of Americans in the market for an MP3 became iPod owners. Chances are, you employ at least a few of them. While the iPod has already become the recreational gadget du jour, Apple has developed accessories to help make it even more irresistible. The iPod Hi-Fi Dock ($349), a home stereo unit that eschews CD players and tape decks for an iPod hookup, lets users give those ear buds a rest.

In a perfect world, there would be money in the budget to send an outstanding employee and their family on vacation. In an imperfect world, a day of fun still goes a long way. Paying for a day at a non-exclusive country club will give golfers, tennis players, or employees simply looking to lie by the pool a chance to do something they already enjoy for free. Giving them a Friday off to enjoy it will only add to the reward. Most country clubs offer one to three-day passes for around $300.

An employee who aspires, and achieves, beyond the call of duty should be rewarded in kind. An LCD flat panel TV, like the Sharp Aquos (46," $2,999) or Sony Bravia (46," $3,299), will act as a reminder of your employee's hard work-and your appreciation-every time they watch it. The set, a conversation piece if ever there was one, can also act as a status symbol and may be enjoyed by the employee's family and friends.

Chris Freeburn is an associate writer for Business 24/7 magazine