The Care and Feeding of Top Talent
Marc Rosenberg, CPAA response to a recent post has sparked the sort of lively dialogue every blogger dreams of, especially since these comments came from my mentor, Irwin Friedman, founder and former MP of FER&S (a national Top 25 firm that merged into RSM McGladrey in the late 1990s). Irwin was responding to my November 12, 2013 blog, “Does Expensive Staff Translate to Lower Profitability?”
My post was triggered by a question from a client, who asked about the correlation of average staff compensation to profitability; the response was based on data from The 2013 Rosenberg Survey.
Statistically speaking, I was unable to find any clear correlation between staff compensation and profitability.
Friedman took exception to my conclusion: “Getting the best talent available at every level guarantees a winning firm. The best talent picks up the training faster, are more motivated to perform at a higher level, receive fewer review notes and progress within the firm much more quickly than the “average” staff person. The clients like working with them, relieving pressure on the managers, so they can deal with higher level, more profitable projects and God forbid have time to market for new clients and/or expanded services. Adding staff at any level and even new partners has the same result. The firm would eventually have top talent at all levels, resulting in a much faster internal growth rate and exceptional bottom lines.”
My response to Friedman: Irwin, I agree 100% with your points. But only if the firm knows how to properly manage their talent. And there’s the rub.
The typical $10M and under local firm often struggles to take full advantage of its top talent. How does top talent benefit the firm?
- Higher productivity.
- Partners can delegate more high level work, freeing them up to bring in more clients, help staff learn and grow and manage the firm.
- Top talent can strengthen the firm’s client relationships, creating “multiple touch points” that enables the firm to better serve and retain clients.
- Top talent, if properly nurtured and mentored, should rise up in the firm and eventually become partners.
So if a firm overpays for top talent and reaps few of the benefits, then the math works this way: Expenses go up and profits go down.
In hindsight I realize I should have driven home more forcefully the point you make: Paying top dollar for the best people should be a preferred strategy because of the benefits we both have expounded upon. But, it doesn’t happen automatically.
Just because my statistical analysis showed no correlation between paying higher salaries to staff and profitability, that doesn’t mean that paying top dollar for top talent is a flawed strategy. It just shows what I’ve been telling people for years: statistics can be a splendid irrelevancy.
Thank you Irwin. I never stop learning from you.
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This is an interesting topic and one that we debated recently. Several years ago, we changed our recruiting strategy to target larger schools and better candidates – GPA of 3.5 or higher. We were fortunate enough to attract several classes of very talented employees. At that time, the Big 4 had slowed their recruiting and we provided a good alternative to graduating students. These employees were everything you would expect from top talent and they were quick to assimilate. We benefited from higher productivity, better client relationships, and were able to leverage the work much better than in the past. It all came crashing down in 2011/2012 when the Big 4 began a recruiting assault on our firm. They aggressively recruited many of our top seniors and experienced staff (new seniors), luring them away with the Big 4 name. Interestingly, several of our departing staff took pay cuts or lateral pay just to work at the Big 4. We have lost substantially all of the new hires from the past 3 years.
So, the debate we’re having is less about managing the talent and more about whether we, as a smaller firm, can offer the talent what they desire. Many or most college graduates going into public accounting do so to “pay their dues” and only a few truly desire partnership. When the Big 4 came knocking, many of our young employees looked upon the opportunity as a resume builder. So, we continue to struggle with the question – do you target top talent with their aggressive career focus and mobility, or do you target more average talent who may be less likely to leave for greener pastures.