As CPA Firms Grow, Compensation Systems Must Grow With Them

Source: The Marc Rosenberg Blog

The following includes excerpts, reproduced with permission, from a blog entry by Marc Rosenberg.

Here are several best practices for partner compensation that usually change as firms migrate from smaller to larger:

• Establish a link between a firm's partner compensation system and achieving strategic plan goals. If partners spend all of their time on client matters, they won't have time to implement strategic planning goals. A link must be established between partner compensation and strategic planning in order for the firm to start growing again.
• Recognize intangible performance measures. Performance areas routinely compensated by larger firms but virtually ignored by smaller firms include (1) mentoring staff, (2) managing the firm, (3) living and breathing the firm's core values, (4) developing specialties and niches and (5) functioning as a team to service clients rather than as Lone Ranger.
• The compensation committee and the board become one and the same. The larger a firm gets, the more it relies on the management and leadership of key management personnel such as the managing partner, the board and department heads. For top management personnel to be effective in leading other partners, they need to influence how partners are paid, not be a “jury” that has little knowledge of what's been going on between management and the partners they are coaching.
• Open vs. closed system. As a firm grows larger and begins to be managed like a real business, it is neither feasible nor fair for partner comp to be open. Partners come to understand that they should be compensated based on how they perform vs. expectations, not how they perform vs. other partners. A closed system gives management the freedom to link a partner's compensation to his/her performance without worrying about having to explain why Partner A is paid X and Partner B is paid Y.

For the original entry, read “Partner Comp Best Practices as Firms Grow.”

From The Marc Rosenberg Blog, June 26, 2012, http://blog.rosenbergassoc.com/.