Biggest Mistakes We See With Partner Comp Plans
Marc Rosenberg, CPA / May 2, 2011
1. We still see way too many formulas. Formulas encourage hoarding, over-compensate inherited clients and production and under-compensate leadership and intangibles. The trend, especially at firms with 7 partners or more is compensation committees.
2. Not performance-based enough. Many firms think their systems are performance-based, but they are not. If 70% of a firm’s income is paid as equal “salaries” to partners and 30% is a performance-based bonus, I’m sorry, your system is not performance-based.
3. Very little pay for developing talent. If developing staff isn’t THE most important success factor at firms, it is certainly no worse that a tie for first with bringing in clients. Yet, we hardly ever see the talent development factor in compensation systems. It needs to be there.
4. Not enough recognition of intangibles. Management of the firm, leadership, developing staff, teamwork, loyalty, interpersonal skills. No one disputes their importance. But too many comp systems neglect intangibles.
5. Too many open compensation systems. Andrew Grove said: “If people are concerned about their absolute level of compensation, then they can be satisfied. However, if their focus is on relative standing, then they can never be satisfied.” Firms are increasingly closing their comp systems and no one is complaining.
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