Pay-for-Performance 101

Source: Partner Insights

The following includes excerpts, reproduced with permission, from an article by August Aquila.

Pay for Performance

Pay-for-performance is paying or compensating an individual beyond base pay or salary for accomplishing specific, agreed-upon measures of performance rather than only for time worked, seniority and/or ownership.

Employees and owners are clear about and understand the relationship between performance and the incentive. This understanding is documented before the fact and is often called a win-win agreement. A win-win agreement is an informal contract between the firm and the individual that outlines expectations of the individual.

The Process

A pay-for-performance system goes hand-in-hand with the strategic plan. For example, Firm A is a mid-sized firm in a secondary market in the Midwest. One of its strategies for the current year is to develop new services. The tax department determines it will develop an estate planning practice with a team of competent professionals.

• Firm Goal — develop new services over the next 12 months
  • Tax Department Goal — develop a viable estate planning group in the next 12 months
  • Tax Partner A Goals
    • Client Development/Management
      • Develop 24 prospects
      • Cross-sells to existing clients or sells to prospect
    • Leadership
      • Develop viable estate planning practice by December 31, 20xx
      • Help estate planning team members achieve their goals

What must the department head accomplish? What must other partners do? What must tax managers and tax staff members do? The answers to these questions serve as the foundation for a win-win agreement with each team member and for a win-win agreement between the firm and the tax department.

Pay-for-performance brings an added dimension. Each person in the firm knows “up front” what he or she must do to be successful.

For the complete article, read “Is Pay for Performance Really Worth the Effort? Part 1.”

From Partner Insights, Aquila Global Advisors, LLC, November 2010, http://www.aquilaadvisors.comwww.aquilaadvisors.com.