Tips for a Successful Incentive Pay Program

Source: Accounting Today

In this article, authors August Aquila and Coral Rice explain how to lay the groundwork for a successful “pay-for-performance” compensation system. To make incentive pay work, CPA firms should:

• Document in writing the relationship between performance and incentives. The agreement should set forth desired outcomes, guidelines on how to achieve them, necessary resources, how the parties will be kept accountable, and the resulting payout.
• Determine the percentage of compensation that will be tied to performance (typically ranging from 10 percent to 50 percent in CPA firms).
• Ensure that the incentive program links to and supports the firm's strategic plan. The strategic plan should define key goals and spell out how the firm will measure their accomplishment; the incentive system should be designed to promote behaviors that help accomplish the firm's strategies.
• Design the pay-for-performance system so that it measures both independent and interdependent accomplishments. In other words, each person should understand what he or she must do as well as what the team must to do to achieve the firm's goals, and understand how his or her behavior affects the team's performance.
• Reward both competence — technical skills, business development, client service, etc. — and character — that is, living the firm's values.

In a future article, the authors will discuss pay-for-performance benefits and pitfalls.

For the complete article, click here and select “Making pay-for-performance pay” under Practice Resources in the July 19, 2010, issue.

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