Compensation Program Should Reward Overall Contribution

Source: Partner's Report

Incentives are playing an increasingly important role in partner compensation. In the past, base pay typically accounted for 70 percent to 90 percent of annual earnings. Today, many firms are moving to a system in which incentive pay makes up 20 percent to 50 percent of compensation. As firms evaluate compensation, they are taking a hard look at the way incentives are calculated. To avoid giving underperforming partners a windfall, firms are developing compensation programs that reward broader contributions to the firm, not just business development.

This article offers several tips for designing effective incentives, including:

• Be sure that incentives (1) are linked to overall firm, as well as individual, performance (2) offer rewards substantial enough to motivate partners, and (3) are readily understood by participants.
• If you expand your compensation program to reward different contributions to the firm — cross-selling, for example — be sure that your firm's culture and structure facilitates partners' success in achieving their goals.
• Give your program time to work. Don't expect things to change instantly.
• Educate partners about the reasons for redesigning your compensation program.
• Consider adopting a closed compensation system to discourage drawn-out debates about compensation decisions (but provide dissatisfied partners with an avenue of appeal).
• Review and update your compensation program regularly.

For the complete article, read “Why You Should Change Partner Compensation.”

From Partner's Report, The Monthly Update for CPA Firm Owners, Institute of Management and Administration, Inc., [email protected], December 2010, p. 1.