Partner Compensation—Small Firms vs. Large
Source: Accounting Today
Consultant Marc Rosenberg draws some important distinctions in how large and small firms determine partner compensation. Large firms are those in the top 100 in the country. All others are small. We have created the following table to highlight some of the differences:
| Large Firms | Small Firms | |
| Strategic plan | Partners compensated on contributions to achieving firm goals. | Partners not compensated on contributions to achieving firm goals. |
| Partner evaluations | Tend to evaluate partners. | Tend not to evaluate partners. And when they do, they don’t use them in allocating income. |
| Book of business, business development, billable hours | Less significant | Significant in allocating partner income. |
| Formula compensation* | Not generally used. | Don’t know much about other partners’ performance. Therefore, many base compensation on formulas. |
| Compensation committee | Becoming more popular in firms with more than 10 partners. | Can help determine non-quantifiable performance. |
| Teamwork | Use teams to manage clients. | Team approach fails if partners must be concerned about book of business |
| Billable hours | Nonbillable time becoming more important. | Nonbillable time becoming more important. |
| Managing, mentoring, developing new services, etc. | Highly important. | Don’t focus on these. |
| Core values | Often attribute their success to commitment to core values. | Most don’t have written core values. |
*A formula that assigns weights to results such as billable hours, new business, book of business, etc.
One difference that may not affect determination of partner income is that in large firms partners generally don’t know the compensation of other partners, whereas small firms have open compensation systems.
And finally, large firms tend to fire partners who are not contributing to the achievement of their strategic plans, whereas this seldom happens in smaller firms.
For the complete article, click here and select the article “Partner Compensation in Large vs. Small Firms” in the September 8, 2008, issue.
From Accounting Today, September 8, 2008, SourceMedia Inc., One State Street Plaza, 27th Floor, New York, NY 10004, 800-221-1809.
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