Source: Accounting Today

August Aquila, co-author of Client at the Core: Marketing and Managing Today’s Professional Services Firm ([email protected]), offers some thoughts that will crystallize your thinking about partner compensation.

It is axiomatic that partners judge the adequacy of their compensation on what other partners are making. It is very emotional. How do you deal with that? We all know that equal pay, lockstep pay, and managing partner decisions, tend to avoid the real issues, i.e., that compensation should be determined by your job category, your skill, and your performance. Partners are not equal. Systems such as "eat what you kill," and formula based systems focus on individual production and cause partners to avoid collaboration.

A good system puts management at risk if the firm does not perform well. It must promote teamwork. Everyone must view his or her contributions in terms of their effects on the firm’s achievement of its goals.

Most good systems use a base pay system plus incentives. Base pay, which should not be more than 75 percent of total compensation, is based on different categories of jobs in the firm.. The categories are: leaders, finders, minders, and grinders. In the past firms used only the last three categories. The leader category is something we now find in most successful firms. Many partners have skills that cut across the categories, but most have skills that make them more suitable for one category.

The incentive part of the compensation program rewards people for their contributions to the firm’s goals. Individual performance should not be included in base compensation, and is rewarded only to the extent it contributes to firm goals. In other words the individual succeeds only when the firm succeeds.

The larger the percentage of incentive compensation to the total, the more talent the firm will attract.

From Accounting Today, June 5, 2006, SourceMedia Inc., One State Street Plaza, 27th Floor, New York, NY 10004. For the complete article, click on the following link: http://www.webcpa.com/article.cfm?articleid=20398&;pg=acctoday.