Partner Compensation Systems are Changing
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Source: CPA Practice Management Forum Marc Rosenberg, The Rosenberg Associates,
Strategic Plans—In the past, partners were generally compensated on book of business, charge hours, ownership, etc. This system encouraged partners to operate as individual practitioners and militated against teamwork. Partners weren’t assigned to carry out specific parts of the strategic plan, and didn’t have time for it in any event. Compensation systems should promote cross-selling, management, mentoring, new product development, etc. Book of Business Book of business traditionally was the heaviest weighted factor in compensation systems. It is still important, but less so. Typically, the partner who managed a book of business also originated it. But sometimes clients are transferred to other partners for various reasons, including the need to free up rainmakers to make more rain. Partners who originate and control a book of business should be compensated more highly than those who do only one or the other. On the other hand, partners who transfer client responsibility because it is in the firm’s best interest shouldn’t be penalized. If book of business is the most important element of the compensation system, such transfers will be inhibited, and the firm will suffer. When clients have relationships with the firm as opposed to an individual partner, the relationship is better and is more likely to survive the retirement of the partner. If book of business is the most important element of the compensation system, the partners won’t facilitate the creation of such “institutional” relationships. Billable Hours The more important billable hours are to a partner’s compensation, the less likely he or she is to delegate to provide time for the things partners are supposed to do, namely bringing in business, making sure clients receive good service, developing staff, etc. Compensation Formulas Formulas are popular, but are becoming less so for the same reasons that the importance of book of business and billable hours has been decreasing. It generally inhibits delegating to free up time for the things partners are supposed to do. Systems that are becoming more popular include: Committees—A small group evaluates each partner’s performance and makes decisions on the amount of his or her compensation. This works best in firms with 10 or more partners. Voting—All partners vote on the allocation of income to the partners. The average, excluding the high and low allocations for each partner, is used to determine his or her compensation. This works best in firms with five to nine partners. Managing Partner—In the corporate world, compensation decisions are made by the executive’s superior. This system is effective in firms with two to seven partners, where the partners are accountable to the managing partner. From CPA Practice Management Forum, |