Have You Outgrown Your Compensation System?
Source: Solutions for CPA Firm Leaders
The following includes excerpts, reproduced with permission, from an article by Rita Keller.
How long has it been since you updated your partner compensation method? As firms grow, partner compensation systems become outdated and unworkable and cause stress among the owners. Now is the time, as fall is approaching, to get ready for next year.
The real key to partner compensation is a documented goal-setting system with partner expectations that are well defined, frequently monitored and openly discussed. Yes, communication among the partners is very important and, as firms grow and prosper, meaningful partner communication becomes more and more difficult.
If you are a firm with four partners or less, keep the compensation process fairly simple. I see many smaller firms use the slip-of-paper approach with great success IF the communication among the partners is healthy and frequent. However, many firms have experienced significant growth in recent years and are operating with the same partner compensation system and the same internal management structure that they used 10 years ago.
There is really too much to cover in this brief newsletter article but I can offer you some excellent resources for researching and reading about methods of CPA firm partner compensation.
- Bill Reeb's “Eat What You Kill” Versus “Building a Village” method is something that I am totally aligned with.
- Marc Rosenberg has a recent blog post titled “Biggest Mistakes We See With Partner Comp Plans.”
To paraphrase Jim Collins, from his book Good to Great:
We found no systematic pattern linking partner compensation to the process of going from good to great. It's not how you compensate your partners; it's which partners you have to compensate in the first place. If you have the right partners on the bus, they will do everything within their power to build a great firm, not because of what they will “get” for it, but because they simply cannot imagine settling for anything less.
For the complete article, read “Update Your Partner Compensation Method for 2012.”
From Solutions for CPA Firm Leaders, Rita Keller's CPA Management Newsletter, www.ritakeller.com, August 10, 2011.