I first faced this dilemma over 20 years ago, when I wore two hats in my own company. In this article, I will explain why separating the roles and incomes of a CEO and a business owner proved to be not just useful, but vital—and outline the most common mistakes entrepreneurs make when trying to combine these two functions.
In reality, it is very simple: a CEO should be paid the same salary you would pay a hired executive in that position. At the same time, the company’s financial management must be structured in such a way that dividends, which reward the owner for their work, are distributed on a regular basis.
It is crucial to understand that these are two entirely different activities.
Two Different Jobs — Two Different Rewards
- The first job is that of the CEO. This involves managing department heads, planning, strategy, and execution. Metaphorically speaking, a CEO is someone who squeezes the absolute maximum out of the existing technology, resources, marketing, and everything the company already has in place.
- The second job is that of the owner. This is activity related to strategy, the future, attracting investment, and ensuring the company develops new products, new technologies, and new growth directions. This is a completely different job that requires a different approach and a different reward.
How I First Structured This System
Back in 2002, I first encountered this issue myself while building the management system for my manufacturing company, Heroldmaster. Once we set up our financial management, we established a system where specific sums of money were set aside every week. A portion went into stable reserves, and another portion went into a profit-based compensation fund.
This was the only way to build up reserves and receive compensation for economic growth—by treating it as a non-negotiable expense. Just like taxes, rent, and other company liabilities.
We began operating under this system, and soon enough, I was faced with that very question: what salary should I pay myself as an owner who also serves as the CEO? My partner and I decided at the time that we should pay ourselves a salary as specialists.
If, for instance, a good CEO for a company of our size at that time commanded $1,500 to $2,000 a month on the market, that was exactly the amount I set as my CEO salary. The rest of my compensation was received as a co-owner, paid out for what I did to develop the business.
The Benefits of Separating the Roles
This approach yielded highly positive results. I quickly realized that, even from the perspective of my personal interests and development, it was far more promising and exciting for me to focus on accelerating the company’s growth so that dividends would increase.
After some time, I hired a CEO. And hiring one turned out to be much easier because a clear system was already in place: clear compensation, a defined role, and structured responsibilities.
Why Combining the Roles of Owner and CEO Is a Mistake
When a person merges the functions of an owner and a CEO, their performance as a CEO suffers. It is physically impossible to perform both roles to a high standard.
A person has a limited number of hours in a day. To perform the owner’s job—which is tied to strategy and development—they must dedicate a significant portion of their time to it. But doing so inevitably degrades the quality of their work as a CEO.
If there were a hired CEO in place who was fully dedicated to management, they would perform that job better. Therefore, a situation where a company owner acts as its CEO can only be justified for a certain period of time. As soon as the opportunity arises, you must move away from this setup.
Research by Chinese scholars published in the scientific journal Frontiers in Psychology confirms that combining the roles of owner and CEO reduces business efficiency. A study of over 300 entrepreneurs in China showed that business owners who combine strategic management, operations, and team development experience role overload. This state leads to decreased concentration, increased stress, and poorer decision-making quality. Researchers identify delegation as the key tool that allows an owner to step away from daily operations and regain focus on the company’s strategic development.
There is another reason. By nature, an owner is interested in constantly raising the bar, creating something new, developing the company, and pushing it forward. A CEO, on the other hand, is interested in keeping processes stable and avoiding too many changes. For a CEO, any innovation is a challenge and an extra burden.
Consequently, when the same person combines both roles, they invariably become ineffective as both a CEO and an owner.
The Conflict of Interest Within One Person
When I am in the CEO role, frankly, I don’t really want to hear about some ambitious plans from the owner, because I understand that as the CEO, my workload will increase.
And when I act as the owner, I think about how I, as the CEO, will have to implement all of this later. As a result, I start holding myself back, limiting my own creativity and initiative.
This ultimately leads to me simultaneously damaging both the future of the company and its current efficiency. Therefore, this is something you need to move away from as early as possible.
How to Move Away From It
The simplest way is to implement a management system and hire a CEO. This allows the owner to transition to managing through a system rather than through personal involvement.
When the system is built, real magic happens. The owner looks at the CEO running the company and suddenly sees how many untapped opportunities there are in the business.
They realize there are dozens of development areas they simply hadn’t noticed before. Time, energy, and creativity return. You get the feeling that a new world, a new life, and a new future for the company are opening up before you.
And this is not because the person themselves changed, but simply because they got out of the daily operations. They finally have the time and energy to look at the business from the outside, and that is when they begin to fully realize their potential.
This is exactly what I believe is the main goal of an entrepreneur’s development—not just to make money, but to reach a level where they can manage the company as an owner and create value, rather than putting out fires.
Business systematization expert and guest speaker at international business conferences; author of 4 books on business management.
