Solving the Partner Compensation Dilemma

Source: CPA Trendlines

The following includes excerpts, reproduced with permission, from an article by Gary L. Adamson.

There is a constant topic of conversation both inside firms and at almost every conference. It is the age-old question of partner compensation and “how do you do it?” As our firm grew, we evolved from everyone is equal, to the “slip of paper” approach, to a more goal-driven, performance-based system. Every firm is a little bit different but the issues surrounding how you split the pie are pretty consistent.

How you choose to solve the partner comp question in your firm depends on a number of things, including size, number of partners, and where you are on the firm age/evolution spectrum. There is a movement to more performance- and goal-driven systems, even in smaller practices, and away from “we're all the same.” We all know the reality is that we're not.

There is also a movement away from formula-based systems. It is very difficult, if not impossible, to find the mathematical equation that will consistently result in a fair outcome. There are just too many variables that don't fit well in a formula.

Regardless of the details of your plan, several rules or themes will hold true:

• Judgment is always a critical part of the plan. Even in a formula-based system, decisions are made on which criteria get measured and the relative weight of each one.
• You are working with tangibles and intangibles. Tangibles are the things that we all measure, like production, billings, business development, etc. Intangibles are the more-difficult-to-measure human factors, such as leadership and team development.
• No two partners are alike. You should consider different performance measures and goals based on the individual's particular contributions to the firm.

The accompanying checklist provides a framework to get you thinking and to help you review your current process. It is not intended to be all-inclusive or to fit you perfectly. Every firm truly is different.

For the complete article, including the checklist, read “The Partner Compensation Checklist.”

From CPA Trendlines, http://cpatrendlines.com, April 30, 2012.