Reviewing Your Partner Compensation Plan

Some of the current methods of partner compensation include:

• Equal distribution of income—but this can result in equal performance at the lowest level
• Formulas—tend to be complicated
• Managing partner decides
• Committee decision—perhaps the best system for large firms
• Owners earn points which are used as the basis for allocation of income—works best in the largest firms
• Balanced scorecard—income earned by partners is based on their performance in relation to various strategic objectives

Blum Shapiro, a Connecticut firm of 165 people including 18 owners, employs a system under which each partner prepares a plan and is rewarded for achieving its objectives. It has a compensation committee including the managing partner and 3 other elected members.

Relevant goals in the compensation system include revenue and net income per owner and per employee, chargeable hours, realization, managed revenues, monthly billings, etc. These kind of quantitative numbers account for half the bonus pool. One quarter of the pool is based on new business, including cross selling, and the remainder is based on other achievements including intangibles such as technical and industry knowledge, new contacts, recruiting/retention, speaking, mentoring, evaluating, client transition, and leadership/management. Work on niche development, mergers, etc. is also included.

Bonadio Group, a Pittsford, New York, firm of 200 has 5 teams. Each team has a leader and a set of goals. Partners are rewarded for contributing to team goals based in part on team leader feedback.

From Partner’s Report—the Monthly Update for CPA Firm Owners, January 2006, p. 1. For the complete article, click here. For subscription information contact Institute of Management & Administration, Inc., 3 Park Avenue, 30th Floor, New York, NY 10016-5902. One-year subscription $349. 212-244-0360, [email protected].