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Can You Pay Yourself a Salary?
June 1952 Radio & Television News

June 1952 Radio & Television News
June 1952 Radio & Television News Cover - RF Cafe[Table of Contents]

Wax nostalgic about and learn from the history of early electronics. See articles from Radio & Television News, published 1919-1959. All copyrights hereby acknowledged.

Those of you who have or have had a business where you employed workers can relate to this article which appeared in a 1952 issue of Radio & Television News magazine. Never having had that responsibility, I cannot relate directly. Small business owners I have known have told me about how their first responsibility is to pay employees before paying themselves, and no one who has never been in that position can truly relate to it. What I find interesting in these kinds of vintage articles is the cost of goods and services back in the day, with the help of the Bureau of Labor Statistics' Inflation Calculator. For instance $100 per week ($5,200/year) income back in 1952 is supposedly equivalent to $1,024 per week ($53,248/year), which really is pretty good. I don't know how generous fringe benefits (medical, dental, vacation, retirement, etc.) were in 1952 compared to today, and that information would be needed to do an apples-to-apples comparison on overall compensation.

Can You Pay Yourself a Salary?

Can You Pay Yourself a Salary?, June 1952 Radio & Television News - RF Cafe

Table 1 - Owner's annual salary as compared with compensation paid to employees.

By Harold J. Ashe

Is your service business providing you with an adequate return for capital and time invested?

The self-critical radio-television service shop owner may very well ask himself whether, in fact, he is a success in his business. Self-esteem may dictate an affirmative answer even though an objective analysis might indicate a contrary conclusion.

While there are many ways in which business success may be evaluated there is one acid test that is paramount. This test is: can the shop owner pay himself a salary out of business earnings, and one commensurate with his value to the shop?

Few people are in business for their health, and service shop owners are no exception. There is not much point in taking on the heavy responsibilities of shop ownership unless there is an adequate financial reward. Nevertheless, there is considerable evidence that a large number of radio-television shop owners are making less for their time than their highest paid employees. This means they are making nothing on their capital investment.

How much should a radio service shop owner make to equal the wage or salary of his highest paid employee? If the shop owner's top employee is paid $60 for a 40-hour week, the hourly rate is $1.50. To be equally well compensated, the shop owner must pay himself an annual salary of between $5148 and $6177.60 for his time! And this will only put him on a par with his highest paid employee. This is not a typographical error. Yet, many radio service shop owners fail to net such a return for both personal services and capital, let alone for their services only plus an additional return on capital.

How is such a shop owner's salary arrived at? The thing to remember is that while the employee earns $60 for 40 hours service, the shop owner, on the other hand, devotes 60 to 72 hours or more a week to his business. He gets to the shop early and he leaves late. If he keeps the shop open one night a week, he is the one person most certain to put in a night shift. In addition, he is likely to spend nights in the shop going over his accounts and doing necessary paper work, taking physical inventory, etc.

So, assuming the shop owner values his time as being worth at least as much as his highest paid employee getting $60, he must pay himself far more than that. On a 66-hour week basis his salary should be $99. That's not all. Employees have certain fringe benefits in addition to their pay checks. The shop owner covers them with workmen's compensation, unemployment insurance, old-age social security and sometimes, life insurance policies, and may give yearly bonuses. These add real value to the pay check. Thus, another 10 per-cent should be added to the $99 to compensate for these other valuable considerations obtained by employees. This brings the shop owner's salary to $108.90 a week or at an annual rate of $5662.80.

This $5662.80 still does not provide any reward for the special management skills and responsibilities of the shop owner that distinguish him from even his most valued employee. Neither does it provide for a fair return on his capital. Nor does it give a margin to offset the risks peculiar to the business and which are inherent no matter how sound the management.

NOTE: To the foregoing salary should be added an amount representing the fair value of the owner's services over and above the value of the highest paid employee. In addition. there is still an amount to be earned as a return on capital investment.



Posted October 7, 2021

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