Skip to content
GLOSSARYTERMS AS A CREDIT DESK USES THEM

Owner remuneration normalisation

What is owner remuneration normalisation, and why does it change a small firm's EBITDA?

ONE OF 416 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

Owner remuneration normalisation replaces what the owners of a private business pay themselves with what it would cost to employ someone to do their work, before the earnings are read. An owner-manager taking a US$40,000 salary for a job a hired manager would cost US$150,000 to fill overstates EBITDA by US$110,000; the adjustment runs the other way when the pay is above market. Owners often set their pay to suit tax, such as a small salary plus dividends in the UK or a shareholder-employee salary fixed after the year end in New Zealand. A lender normalises because a market wage becomes payable once the owner leaves, sells or falls ill.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// THE FULL PAGE

Owner Remuneration Normalisation: a Worked Example →

Price the founder's job as if someone else had to do it.

// WHAT IT IS NOT

Owner drawings are the cash owners take out, which a lender deducts from profit; normalisation corrects the cost of the owners' labour inside the earnings. On an owner-run business a desk may do both, and has to avoid deducting the same money twice.

// WORKED IN

// NEXT TO IT

READING THE NUMBERS

All 416 terms on one page