Paying the Managing Partner

Source: Partner Advantage Advisory

Some so-called managing partners are really chief administrative officers with responsibility for financial matters including controllership, hiring, office management, etc. A true managing partner, however, manages the partners and helps them achieve their goals. He or she provides leadership and vision, drives the firm toward the realization of its goals, and often has considerable control over partner compensation.

Many CPA firms don’t distinguish between ownership and management. The partners may equate ownership with management authority; consequently, they undervalue the role of the managing partner. They expect him or her to be evaluated according to chargeable hours, book of business, and new business generated. But a good managing partner will have a major impact on the firm’s long-term profitability and value through vision, leadership, drive, and perhaps charisma and personal power.

The compensation of a true managing partner should be in the upper quartile of all partners, and possibly the highest. But an extraordinary revenue producer/rainmaker may earn more. It is not uncommon to pay the managing partner a percentage of increased profits as a bonus. The managing partner’s value is not based on his or her production or book of business because a good managing partner will delegate much of that activity to other partners.

Retirement benefits for the managing partner should be the same as other partners, i.e., based on the value of all past contributions, not the acquisition of his or her clients.

From Partner Advantage Advisory, June 2005, p.1. Hudson Sawyer Professional Services Marketing Inc. www.hudsonsawyer.com subscription $279 per year; single issues—$25. Orders 800-945-6462.