Biggest Mistakes We See With Partner Comp Plans
Marc Rosenberg, CPA1. 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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Marc – one other factor, perhaps it is too obvious, is transparency. Every partner needs to understand and buy into the system or some one will always be dissatisfied. If they cannot see and understand how it works, the system is doomed to create ill will.
Good point. No question that it would be great if all partners bought into the comp system. But I have worked with a few firms over the years where most of their partners buy-into the comp system, but one or two do not. If these outliers are otherwise productive partners, and they don’t let their displeasure with the comp system negatively affect their relations with other partners and their demeanor in the firm is healthy, the comp system can work even though they disagree with the comp system. Some of us, myself included, make the mistake of assuming that compensation is the #1 driver for all partners. It’s not the #1 driver for some partners.