Bonus impasse between company directors

Discussion in 'General Business Forum' started by BlueSky2019, Jul 13, 2019.

  1. BlueSky2019

    BlueSky2019 UKBF Newcomer Free Member

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    Newbie here and not sure really where to start. My husband and his business partner set up a company approx 10 years ago. BP and his wife, husband and myself have 25% shares each. Husband and BP manage the business 50/50.

    They have been through peaks and troughs over the years but have generally made a reasonable living and provided well for their 10 employees.

    However since Brexit was declared BP has become all consumed by it, even to the point of losing sleep. Husband is far more pragmatic and fundamentally believes that as they have no control, they just need to get on with things.

    To cut a long story short, because BP is so worried, he has blocked any bonus between the 2 of them for the last 2 years! This, despite making a good profit, so many orders they can barely keep up and a more than healthy sum sat in the bank and increasing.
    On top of this they both work insane hours and have all the responsibility without any of the reward. They pay themselves a fairly modest salary which is not much more than a middle manager would earn and minus a lot of the grief.

    It is stale mate. Husband doesn’t want to take a large amount, just enough to make it all a little more worthwhile. Yet BP thinks we’re all going to hell in a handcart and therefore refuses to let any bonuses be made. I understand his fears but he seems to have lost all perspective.
    Apart from Brexit, it also seems that BP makes all the financial decisions but whereas in the past there was some compromise, he has totally shut down on this one.

    Does anyone have any experience of a similar situation where equal BPs have opposing views or advice. I generally have a very handsoff approach but am at end of my tether with this impasse. Husband is exhausted and quite frankly questioning why he’s even bothering.

    Am sure I’ve left out other important info so please feel free to set me straight.
     
    Posted: Jul 13, 2019 By: BlueSky2019 Member since: Jul 13, 2019
    #1
  2. Paulo1Chop

    Paulo1Chop UKBF Contributor Free Member

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    So, what's the ideal solution you would like to work towards both short-term and long-term?
     
    Posted: Jul 13, 2019 By: Paulo1Chop Member since: Jul 12, 2019
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  3. BlueSky2019

    BlueSky2019 UKBF Newcomer Free Member

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    Thank you for replying. I guess short-term they can agree on something being taken, whilst the rest stays
    in bank (which is what Husband has suggested).
     
    Posted: Jul 13, 2019 By: BlueSky2019 Member since: Jul 13, 2019
    #3
  4. Paulo1Chop

    Paulo1Chop UKBF Contributor Free Member

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    Whilst the political situation may go either way (who really knows) in the next few months the ramifications are more than likely going to be much more longer term than that if the 2 BPs have reached a point where they have quite fundamental black/white views. It seems much more deep rooted than a mere financial dispute - obviously I may be completely wrong - but if the relationship is broken then it may be very difficult to move forwards with the current structure in place?!
     
    Posted: Jul 13, 2019 By: Paulo1Chop Member since: Jul 12, 2019
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  5. BlueSky2019

    BlueSky2019 UKBF Newcomer Free Member

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    They actually work quite well together as both are able to play to their strengths; it’s pretty much just the frustration of taking any money out of the business. You’re right, no one knows what’s going to happen once we come out the other side, but everyone’s in the same boat.
     
    Posted: Jul 13, 2019 By: BlueSky2019 Member since: Jul 13, 2019
    #5
  6. Paulo1Chop

    Paulo1Chop UKBF Contributor Free Member

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    The money side will always be there though. Hopefully, they can resolve it then without having doing any long term damage as the whole Brexit deabcle could drag on for years!
     
    Posted: Jul 13, 2019 By: Paulo1Chop Member since: Jul 12, 2019
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  7. BlueSky2019

    BlueSky2019 UKBF Newcomer Free Member

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    Quite!!
     
    Posted: Jul 13, 2019 By: BlueSky2019 Member since: Jul 13, 2019
    #7
  8. strikingedge

    strikingedge UKBF Regular Free Member

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    It is reassuring to have money in the bank - you know there is a cushion if things go wrong.

    It sounds like the cash hoarding is more about feeling secure than an actual business need, which is irrational and may end up doing more harm to the company than BREXIT by damaging the relationship between the two directors.

    I think the first question is how much money could you need if cash flow was hit by a BREXIT downturn?

    You'd need to factor in key customers not being able to pay and also loss / delay of future business.

    Once you've modelled a reasonable worst case scenario and worked out how big a cash reserve to prudently keep, if you already hold more than that figure, it should be OK to pay some of it out in bonuses / dividends.

    BP only has 25% of the shares - is it possible that his wife might feel they should be increasing their drawings?

    If they think BREXIT is going to be horrendous - wouldn't it be prudent to have their own cash reserves - perhaps even in Euros?!

    There are a couple of strategies that worked for me in similar situations:
    - Increase pay incrementally - e.g. pay a bonus out over 12 months, and agree to pause if the business hits a sticky patch.
    - Bring in a third party who BP will respect and listen to. He/ She might make all the same points you make - but they do it from a position of authority and experience.
    - Be prepared to compromise and take small steps - you need to nudge BP's thinking, not completely challenge his world view or he'll shut down.
    - Set-up a review of everyone's pay, perhaps a market rate exercise, with an HR Consultant or Accountant - and just ensure that Director Pay is included in that discussion as well.
     
    Posted: Jul 13, 2019 By: strikingedge Member since: Jan 25, 2009
    #8
  9. MBE2017

    MBE2017 UKBF Enthusiast Free Member

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    I would suggest they discuss the amount both feel as a bare minimum they wish to have in reserves, hopefully come to an agreement ent and then they might feel able to agree a release figure.

    Your husband also needs to point out both their views need to be taken into account if they wish to continue being successful. No point in ignoring this problem, it will fester and infect the relationship.
     
    Posted: Jul 14, 2019 at 7:39 AM By: MBE2017 Member since: Feb 16, 2017
    #9
  10. BlueSky2019

    BlueSky2019 UKBF Newcomer Free Member

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    Thank you for your replies . Yes “cash hoarding” is exactly what it is.

    I actually think BP’s wife is driving his anxiety with taking money. She has always kept an extremely tight rein on their personal finances and attempts to control the business this way. We therefore come at it from different perspectives. They are for the school of keep everything in the business, don’t spend anything, whereas we are far more “what’s the point of doing this if the cash can’t be sensible drawn?”

    Problem is that Husband says that as the business is 50/50 the partner who votes to do nothing trumps the one who wants to take action??
     
    Posted: Jul 14, 2019 at 8:48 AM By: BlueSky2019 Member since: Jul 13, 2019
    #10
  11. Newchodge

    Newchodge UKBF Big Shot Free Member

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    Do you mean bonus or do you mean dividend?

    If you mean dividend then all your husband can do is demonstrate that the figures would permit x dividend, but the proposal is only to take x/4, or whatever. His strategy should be to get the other side to explain exactly what they fear would happen if that dividend were paid.

    If you do mean bonus then, as it is entirely discretionary, it is harder to argue logically.
     
    Posted: Jul 14, 2019 at 9:10 AM By: Newchodge Member since: Nov 8, 2012
    #11
  12. BlueSky2019

    BlueSky2019 UKBF Newcomer Free Member

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    Sorry, yes to clarify it’s dividend
     
    Posted: Jul 14, 2019 at 9:17 AM By: BlueSky2019 Member since: Jul 13, 2019
    #12
  13. BlueSky2019

    BlueSky2019 UKBF Newcomer Free Member

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    Husband says that BP has become increasingly irrational over Brexit, even to the extent it’s affecting his sleep. He is refusing to even discuss a way forward or compromise and has just shut down
     
    Posted: Jul 14, 2019 at 9:42 AM By: BlueSky2019 Member since: Jul 13, 2019
    #13
  14. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

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    If I was in that situation , I would try to resolve it by drawing up cash flow projections with as many worst case scenarios for the next two years as well as your more normal scenario that life will continue much the same as it has been over that last few years

    If you have the figures written down you can all understand your expectations for the future

    With so much speculation about the future post brexit, it would be wise to have a good reserve to cover most eventualities, but if your short of money than maybe a increase in wages would not interfere much with the reserve

    Have a discussion with the others about their fears and use the cash flow projections to allay fears if that's what they show
     
    Posted: Jul 14, 2019 at 10:02 AM By: Chris Ashdown Member since: Dec 7, 2003
    #14
  15. tony84

    tony84 UKBF Big Shot Free Member

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    This was my train of thought. Discuss what needs to be in the account for them to feel comfortable. There must be a number. 5 years costs is probably excessive as it would probably be better to close down when the time comes if he thinks that is needed, but if it is 2 years then that might not be so unreasonable - it depends on the figures we are talking. I have put 12 months income/expenses aside. If things become really bad, I could probably drag it out to 18 months. But if all hell breaks loose and I can see it is another 5 year recession I will shut up shop and get a job.

    There needs to be a discussion about it and a plan put in place as ultimately the relationship is going to deteriorate and that needs to also be addressed in the discussion.

    I can honestly see both sides of the argument. If you have money in the bank you can ride out a poor period where as your competitors may not be able to so after a year or 2 of cut backs, you come out of it in a far stronger position. But if there is too much money in the business, there is no harm in having your own savings in place for if/when it does hit the fan. I will be really honest and say I am working hard at the minute to put money aside for a bad brexit. If it does not come, I can withdraw the money and get the money in the long run.
     
    Posted: Jul 14, 2019 at 10:12 AM By: tony84 Member since: Apr 14, 2008
    #15
  16. billmccallum1957

    billmccallum1957 UKBF Ace Full Member

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    What does the BP's wife think? If you have 4 shareholders then its likely that 75% can vote a dividend, if she wants a bonus, you could get her to vote with you.
     
    Posted: Jul 14, 2019 at 11:16 AM By: billmccallum1957 Member since: Feb 11, 2016
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  17. BlueSky2019

    BlueSky2019 UKBF Newcomer Free Member

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    Five years costs is out of the question, even 2 years may be a stretch.
    Husband’s fear is that the money all gets left in the business and then if Corbyn gets in, it will all be lost anyway!
     
    Posted: Jul 14, 2019 at 11:17 AM By: BlueSky2019 Member since: Jul 13, 2019
    #17
  18. BlueSky2019

    BlueSky2019 UKBF Newcomer Free Member

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    Wi
    with
    without any doubt she will want to also keep it in the business. Guilt complex about having money and spending it.
     
    Posted: Jul 14, 2019 at 11:22 AM By: BlueSky2019 Member since: Jul 13, 2019
    #18
  19. Newchodge

    Newchodge UKBF Big Shot Free Member

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    That is probably as irrational a fear as the fear of Brexit
     
    Posted: Jul 14, 2019 at 11:24 AM By: Newchodge Member since: Nov 8, 2012
    #19
  20. BlueSky2019

    BlueSky2019 UKBF Newcomer Free Member

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    Possibly but difference being no sleep lost over it and doesn’t interfere with day to day running of business!
     
    Posted: Jul 14, 2019 at 11:40 AM By: BlueSky2019 Member since: Jul 13, 2019
    #20