Survey of Partner Compensation Methods
Source: The Rosenberg Survey
The following data and narrative are from The Rosenberg Survey 2007, based on 2006 Firm Results (published with permission from The Rosenberg Associates Ltd.).
Partner Compensation Systems
The following chart shows types of systems used by CPA firms of various size levels:
|
2 Partners 33 Firms |
3-4 Ptrs 64 Firms |
5-7 Ptrs 88 Firms | 8-12 Ptrs 55 Firms | 13+ Ptrs 35 Firms | 2006 Total | 2005 Total | |
| Compensation Committee | 0 | 6% | 17% | 49% | 57% | 24% | 22% |
| Formula | 18% | 44% | 41% | 35% | 23% | 35% | 40% |
| Paper & Pencil | 0 | 0 | 5% | 4% | 3% | 3% | 4% |
| Ownership Percentage | 21% | 6% | 4% | 3% | 5% | 7% | 6% |
| MP Decides | 15% | 11% | 11% | 4% | 6% | 9% | 10% |
| Pay Equal | 24% | 8% | 7% | 3% | 0 | 8% | 10% |
| All Partners Decide | 22% | 25% | 15% | 2% | 6% | 14% | 8% |
Overall Observations:
- The larger the firm, the more likely it uses the Compensation Committee system.
- Historically, Formulas have been the most common system. They still are, but this is steadily eroding.
- In the 8-12 partner category, two years ago, Formulas were more common than the Comp Committee; last year, they drew even with each other. This year, the Comp Committee is preferred over the Formula method by a meaningful margin: 49% to 35%.
- In the 13+ partner category, where the Comp Committee has always been the gold standard, the gap widened even further against the Formula method. This year, the Comp Committee bested the Formula method by a 57% to 23% margin; last year the margin was 58% to 38%.
- Formulas dominate most in the 3-7 partner categories.
The trend: Firms are paying an increasing amount of attention to the intangible contributions partners make to their firms’ overall success. Examples are nurturing and development of staff, teamwork and firm management. Formulas usually ignore these items. Compensation Committees do a much better job of factoring intangible contributions into compensation decisions than formulas.
So, firms are getting away from near total reliance on the finder, minder, grinder philosophy when it comes to allocating partner income. This by no means relegates business origination and managing a large book of business to secondary status—these will always be important factors. But firms are realizing that there are other important ingredients to success and that these need to be recognized as well.
The complete survey (National MAP Survey of CPA Firm Statistics) can be purchased for $350 from The Rosenberg Associates Ltd., Management & Marketing Consultants, 1000 Skokie Blvd., Suite 555, Wilmette, Illinois 60091-1187, www.rosenbergassoc.com, [email protected], 847-252-7100.