Partner Compensation—The Big Picture
Source: Inside Public Accounting
The following includes excerpts, reprinted with permission, from an IPA article, “Partner Compensation: What is the Right Way to Approach a Difficult and Sensitive Subject?”
IPA interviewed consultant August Aquila, co-author, with Coral Rice, of the best-selling book Compensation as a Strategic Asset: The New Paradigm. Here are some highlights from the interview:
- Difference between the past and now:
In the new system outlined in Compensation as a Strategic Asset: The New Paradigm, partners have more at risk. Compensation is moving from an entitlement system to a performance system. Many old systems relied heavily on production and generating current dollars. Newer systems reward people not only for current production, but also for building future capacity, such as a new service area.
- Symptoms of a weak compensation system:
- Partner dissatisfaction. Partners may also feel the system isn’t fair.
- If income is allocated based on equity, the largest equity holders get the largest compensation. But suppose a junior partner with 10 percent of the equity brings in a new client. He or she gets only 10 percent of the profit from that client. There isn’t much incentive for this partner to bring in new business. The focus is on entitlement rather than performance.
- Here is the biggest challenge in changing the compensation system:
People don’t want to give up their current compensation. You must convince partners that the pie can be bigger. If the firm grows, everyone’s compensation can grow even though some will grow more than others. Partners must do what they do best.
- There is evidence that net income per owner increases in those firms whose compensation systems reward people for contributions to achieving the firm’s goals.
- A new system will evolve over time. It may start with partners and eventually be applied to staff.
For the complete article, click here.
From Inside Public Accounting, July 2008, p. 6, The Platt Consulting Group (www.plattgroupllc.com). Subscription $389 per year; back issues—nonsubscribers $50. 317-733-1920.
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