The Compensation Committee: Making it Work
Source: CPA Trendlines
The following includes excerpts, reproduced with permission, from an article by Marc Rosenberg.
CPA firms are increasingly turning to the use of formal compensation committees (CCs) for a number of reasons. Chief among them: It's the best way to achieve a balance between recognizing traditional production accomplishments and rewarding intangibles.
The compensation committee approach aligns the firm's (1) strategic plan and core values with how partners are (2) evaluated and how they are (3) compensated. It motivates partners to produce what the firm needs them to produce.
The crux of the CC system for allocating partner income is to place the responsibility for making fair and equitable income allocations with a group of people who are trusted to use their best judgment in making their decisions. No rules. No formulas.
If judgment is the number one characteristic, number two must be communication. The rules governing the decisions must be consistent and well understood:
- At the beginning of each year, the CC must be crystal clear in communicating what it will be looking at when it evaluates each partner at the end of the year.
- After the allocations have been decided, the CC must make crystal clear which aspects of performance caused it to award a higher amount of income to each partner and which aspects of performance held back each partner's income.
- “A sincere effort must be made by the judges to collect all pertinent information.” (David Maister) The CC shouldn't meet for an hour or so and wing it. It should collect all relevant data and study it very carefully before allocating the income.
For the complete article, read “The Keys to Success for Compensation Committees.”
From CPA Trendlines, August 9, 2012, http://cpatrendlines.com.