Partner Compensation Programs That Work

Source: CPA Practice Management Forum

In this interview, consultant Allan Koltin offers his insights into what makes a partner compensation program work. According to Koltin:

• The primary cause of conflict among partners is a gap between partners' views of their own talents and performance and the views of other partners. Exercises designed to help partners recognize and close this gap are invaluable.
• Goal setting is critical. The most harmonious firms are those that “have done an exceptional job of setting very specific, measurable, and attainable goals for the partners up front.”
• It's not enough to set goals at the beginning of the year and then wait until the end of the year to see how a partner measured up. To be successful, there should be quarterly coaching and mentoring, as well as an effective accountability structure.
• Two common mistakes can cause even a well-designed compensation program to fail. One is to pay year-end bonuses to everyone without a meaningful difference between those paid to high performers and those paid to underperformers. The other is rewarding partners without a clear link between bonuses and their achievement of specific goals.
• A balanced scorecard approach may not be an effective way to compensate partners. Some firms get so bogged down by formulas and percentages that they lose the flexibility to reward partners for the achievements that truly matter.
• Compensation programs often fail to measure important indicators of partner success, including individual scores on client satisfaction surveys, recruiting of new talent, results of upward evaluations, and involvement with new initiatives or ventures.
• There's a trend among CPA firms toward closed compensation systems, which minimize the disruptive effects of sharing information about peer compensation.

For the complete article, read “Common Characteristics of a Successful Partner Compensation Program.”

From CPA Practice Management Forum, CCH Incorporated, 800-449-8114, November 2011, p. 16.