The Cost Approach is the most common way to determine reasonable compensation. It calculates a reasonable compensation by determining what the replacement cost for each service a shareholder provides their business.
Click Here to view a sample of a Reasonable Compensation Report.
Step 1: Time & Location
To start, specify the average number of hours you spend on your business every week.
Select the state and county where your business is located.
Click Next-Standard Tasks.
Note: Because the Bureau of Labor Statistics defines ‘Year round, Full-time Employment’ as 2,080 hours per year (40 hours per week), set your time to 40 hours per week even if you work more than 40 hours every week.
Step 2: Standard Tasks
A Standard Task is generally a task you perform in your business that is administrative or does not generate revenue.
Browse each category and select the tasks you perform in your business by click +Add Task. Typically you only need to select tasks you spend more than an average of 15 minutes per week.
When finished, click Next-Business Tasks.
Note: You can hover over a task to view a detailed description.
BEWARE: Review the description for Chief Executive thoroughly and only select the task if you fit the description (i.e. you report to a board of directors, etc.). Incorrectly selecting this
task can result in inflated wages.
Step 3: Business Tasks
A Business Task is a task that typically generates revenue and/or is specific to your business (i.e. Real Estate Agent, HVAC Contractor, Lawyer, Dentist, etc.).
Use the Search bar to find a job title.
Hover over the results to view descriptions of each task and click +Add Task for any that apply to you. and select Business Tasks.
Continue this same process to add any additional Business Tasks.
When finished, click Next – Tasking & Proficiency
Step 4: Tasking & Proficiency
In this step you will allocate time to each task and specify how proficient you are in each task.
Note: Unless you have specialized in a task (meaning you worked at a full-time job doing this task), your proficiency for that task is likely Average, Below Average, or Low.
Note: Each task must have time allocated to it. You will not be able to proceed to the final step if there is a task with 0 hours.
For each task, move the slider right/left to indicate the average time you spend on this the task each week.
The chart will update to reflect the time spent on each task. This chart must be at 100% in order to complete the report.
When done, click Next – Review.
Step 5: Review
Review the summary of your inputs and your reasonable compensation report.
If needed, adjustments can be made to the report for 30 days by clicking any on any step of the interview. After 30 days the report will be automatically finalized.
Finalize your reasonable compensation report.
Note: Once a report is finalized it cannot be edited.