Consultant Marc Rosenberg (www.rosenbergassoc.com) interviewed the managing partners of 10 of the top 50 firms. Here is what he reported:

• They have strong managing partners who collaborate with a management team to create vision and core values.
• All partners must observe and be dedicated to established performance and behavioral standards. If they do not comply, they are transitioned out of the firm. Mid-sized firms typically do not do this.
• Managing at mid-sized firms is like “herding cats.”
• While compensation is not the principal factor in performance, it is important.
  • Compensation in mid-sized firms is traditionally based on book of business and charged hours.
  • In the top firms, compensation is connected to achievement of strategic initiatives.
• Top firms use the following equally rated performance factors:
  • Leadership, meaning influencing others.
  • Staff development.
  • Developing client service teams.
  • Providing high-quality client service.
  • Business development.
  • Succession planning for client transition (among young as well as old partners).
  • Production—book of business, charged hours, hours worked, realization, etc.
  • Treating people with respect.
     
• Partner compensation is determined by committees that may include managing partner, senior partner, executive committee members, and department and office heads. The firms understand that supervisors are in the best position to make judgments about compensation. Mid-sized firms’ compensation committees are likely to have little or no direct knowledge of partners’ performance.
• Three tiers of partner compensation are: base, bonus, and interest on capital. Four of the 10 firms pay interest of between prime and one-quarter percent to 10 percent on accrual basis capital. Two firms pay interest on capital including goodwill (at 80 percent to 100 percent of revenues). Four firms pay no interest on capital. Two firms pay no interest or bonus. The ratio of base income to total income ranges from 33 percent to 93 percent.
• Seven of the 10 firms do not disclose partner income. Disclosure causes firms to modify allocations to placate partners who would be irate if they knew what others earned.

From Practical Accountant, September 2006, 800-221-1809. For the complete article, click on the following link: http://www.webcpa.com/article.cfm?articleid=21685&;pg=pracacc.