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Partner Compensation—What Should a Partner Compensation Plan Look Like?

Source: Texas Society of CPAs, Public Practice

Excerpts provided, with permission, from the Texas Society of CPAs.

In his latest article on partner compensation, Bill Reeb provides some examples of strategy and works through examples of partner compensation consistent with that strategy.

Let’s say that your strategy is to:
  • Get partners to stop spending so much time doing lower level technical work.
  • Provide more high level advisory work to key clients.
  • Create more opportunities to help key clients.
  • Do more training and mentoring.
Let’s also assume:
  • Partners are currently compensated based on charge hours and book size.
  • Partners are comfortable responding to client needs, but not comfortable initiating projects.
  • Partners need training in how to be better advisors, but the partners who are good at it are rarely able to teach it.
  • The firm is able to move clients to other partners where necessary.
  • For those partners who are still hoarding their book or won’t let go of marginal clients, even though they have been rewarded with equity in trade for their accomplishments, the managing partner has the authority and will to deal with them, including asking for their resignations if necessary.
Here are the recommendations:
  • Managing partner helps each partner set goals, including visits to key clients for the purpose of strategizing future opportunities for servicing each of these clients.
  • A pool of earnings is set up for a portion of partner compensation. The managing partner has sole discretion over distribution. It should be a sizeable amount for each partner, say 15 percent of total compensation.
  • At least semi-annually, the managing partner will evaluate each partner’s progress in achieving the goals.
  • Distributions are made annually. Amounts not allocated to one partner can be allocated to others who may have overachieved.
  • Examples of goals include (the managing partner will award some percentage of the partners’ bonus pool for achievement of these goals):
    • Visiting clients and updating the CRM system, and creating client service opportunities, which increases business from them.
    • Moving a predetermined amount of business to other partners.
    • Improving the relationship with “D” clients or firing them.
  • Partners will also be assigned a partner training amount to be added to their bonus. The firm should develop an attitude that people should be developed from within the firm. Each department should work from a hiring plan, and leverage will be a basis to analyze the effectiveness of the training plan (leverage equals partner book divided by ALL partner time charged to those clients).
  • Training performance is also evaluated by:
    • Self-assessments.
    • Confidential firm surveys of employees who evaluate the training they received.
    • Evaluation by the managing partner on achievement of training goals.
    • Ratings by each partner on other partners in their departments.
  • The amount of the partner training allowance awarded is determined by the degree of achievement.
For the complete article, click here.

Reeb is a keynote speaker, author, trainer, coach, facilitator and management consultant with more than 20 years of business consulting experience. He has founded seven small businesses in the retail, software development and services sectors, including the CPA firm Winters & Reeb, PLLC, in Austin, Texas. Reeb has also been published internationally, with around 200 columns and articles to his credit.

From Texas Society of CPAs, Public Practice. March/April 2008.

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