Is Your Compensation System Holding You Back?

Source: CPA Practice Management Forum

In this article, consultant Allan Koltin offers his insights into current trends in partner compensation and the obstacles certain compensation systems present.

According to Koltin, the biggest obstacle is a formulaic system in which compensation is driven primarily by partners' books of business, billable hours, and new business origination. This makes it difficult to match clients with the people best suited to handle their work and provides the firm with little incentive to develop future leaders. A more subjective compensation system is more effective in getting partners to think long-term. But for this type of system to work, partners must trust the firm's leadership.

Other obstacles include failure to align individual partner goals with the firm's strategic goals and dividing up too much of the pie at the beginning of the year. Koltin also warns readers of the dangers of open compensation systems. He's seen firms nearly break up because one partner made a few thousand dollars more than another. “I think it would be darn near impossible,” Koltin says, “for someone to argue that closed compensation isn't a better way to manage the compensation process – as long as the partner group can rally around a leader or leadership team they trust to fairly allocate the dollars.”

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From CPA Practice Management Forum, CCH Incorporated, 800-449-8114, November 2009, p. 16, “Current Trends and Opportunities Regarding Partner Compensation.”