Does this make sense?

[kittynurse]

Please help settle an argument between DH and I about his salary!

So, DH is a small business owner with 3 partners. They make a set salary, get paid every 2 weeks and at the end of the fiscal year, they take whatever is leftover and divide it up into bonuses.

I have no problem with his salary currently and I have no problem with the bonuses. The problem I have is that his salary will never increase. They have set it up so that their basic salary stays the same year after year and they just get bigger bonuses each year.

I have no problem with the bigger bonuses each year but it seems totally whacked to me to never get any salary increase at all. Not even cost of living.

I said, "what if, 20 years from now, you are still getting your 2009 salary and for whatever reason you don't get a bonus that year? How will we survive?" He said that if there wasn't a bonus then there wasn't the money for a salary increase. I can't quite wrap my head around it. It's not like the extra money sits there unused all year, they do use it for new equipment or other stuff so the bonuses wouldn't always be decreased by a bad financial year.

So, every year, I have to base our budget on the same salary he's had for the past several years. Fortunately, the salary has been high enough in the past that it wasn't a problem but I can't see that lasting forever. The bonuses nearly always go towards retirement savings or paying off debt we have accumulated over the past year so it's not like I can save the lump sum and just dole it out over the year as we need it.

Also, we never know until he gets it whether he is going to get a bonus and we never know how much it is going to be. So, as you can see, I really can't count on it in any kind of budget.

I should add that the employees all get regular raises but no bonuses except at Christmas.

It makes absolutely no sense to me to never get any raise and to rely solely on bonuses. Does this system make sense to anyone else? Am I the crazy one here?

Martha

[nd_deadhead]

Is there an advantage to the business to do it this way? If so, I might be able to live with it.

Personally, I agree with you.

[kittynurse]

Originally Posted by nd_deadhead

Is there an advantage to the business to do it this way? If so, I might be able to live with it.

Personally, I agree with you.

There's no advantage to it that I can discern and unfortunately I've bitched at him about it enough that he refuses to discuss it with me anymore.

Thank you for agreeing with me!

[Gracerenee]

It would make more sense to at least give each partner a cost of living raise each year, as long as the business was doing well and could afford it. At least then your salary would "stay the same". As it is now you are actually making less and less money each year (as salary), and yes that would stink!

[SuzyLee]

It makes no sense to me. I would consider, if depending on your relationship with the partners, casually bringing it up with them to see their opinion. Maybe one of them is strongly in favor of doing it this way for soem reason you are not aware of and your H doesn't want to rock the boat.

Also, if you have to use the bonus to pay off debt soemtimes, then you are already not living within his salary. That is a problem.

[BellinghamCrunchie]

I've heard of businesses run that way before. Since the bonuses are significant, it is supposed to work as a motivator to run the business competently so that the bonuses are maximized.

Honestly, I don't see anything wrong with it. Its just another way of running a business. Lots of income is sporadic - farming, retail (seasonal), etc, some school districts still pay 9 months and don't spread it out over 12 months. I think the key is to consider the end of the year bonus not as the end of the year but as the beginning of the year. Its that money divided over the next 12 months plus the regular salary that you base your budget on, and keep that money in savings.

As for cost of living increases, well, my workplace (and many others) don't guarantee such things, either. I'm sure that if it becomes an issue in ten years (e.g. they can't maintain their workforce) they'll revisit the issue then. Which is what we do at my workplace.

[KatWrangler]

Originally Posted by Gracerenee

It would make more sense to at least give each partner a cost of living raise each year, as long as the business was doing well and could afford it. At least then your salary would "stay the same". As it is now you are actually making less and less money each year (as salary), and yes that would stink!

This is what I was thinking. Also, to keep some of the bonus out in safe keeping for an unfortunate year.

[Monarchgrrl]

This is how the partners at my company do it. I'm the Director of Finance there. But here, if the company is doing great, then a COL increase every 3-4 years or so happens. The main reason to do the bonuses instead of salary increase is so the partners don't have to pay taxes on that income (personally) and the company doesn't have to pay employer taxes on it. The bonuses come out of the company as a "Partner Draw", NOT as income on a paycheck. (If they are added to your husband's paycheck and taxes are taken out then his company is doing it wrong and there is NO benefit, either to the company or to the partners- and they should get a new finance person. )

I can bet that it sucks for you. I wouldn't be happy with it either. No one at my DW's job has gotten a raise in years, even a COL increase, and they are just the "lowly" workers. Most have gotten their salaries cut. It sucks.