Rosenberg Associates Blog
Marc Rosenberg, CPAA reader queries: We are trying to restructure our compensation plan. I was wondering if you have any insight on “compensation theory” that might help us?
Rosenberg replies…
Except for periodic economic downturns, most firms evolve through many growth stages over time. Firm size changes often trigger modifications of their management practices. The system for allocating partner income is a prime example. Here are several best practices for partner compensation that usually change as firms migrate from smaller to larger: Establish a link between a…
When firms are small or in their early stages of evolution, the focus is necessarily on survival and production. But as firms enter their “mature” phase of evolution, more is needed from the partners than production. How can a firm align partner compensation with strategic planning goals?
If partner compensation isn’t THE most frequent topic on conference agendas, it certainly is near the top. Why is this subject so enduringly fascinating?
Here are some observations based on my experiences consulting with hundreds of CPA firms on partner compensation.
That depends.
For those of you hooked by the title of this blog, I’m sorry to disappoint you with that answer.
In allocating partner income, a firm needs to look at all performance attributes of each partner.
To many, it’s almost impossible to separate “partnership” from “democracy.” Many partners in CPA firms believe strongly that the firm should be managed in a highly democratic manner.
Democracy is a good thing. But like most good things, if taken to the extreme, the results can be disastrous.
Here’s an example….
Increasingly, CPA firms are adopting the Compensation Committee system for allocating partner income. Firms are finding that systems such as formulas, pay based on ownership percentage or pay-equal no longer work. When we compare the usage of the compensation committee today to 5 years ago, the increase in usage ranges from 16% to 26%. If…
Baby boomer partners are rapidly approaching retirement age, creating a huge demographic shift within their firms. One result of this is a dramatic increase in new managing partners at firms. Many firms are skipping a generation and turning the reins over to “younger” partners. Firms are also asking their new MPs to divest themselves of…
It’s often been said that it’s more important what a partner does with his/her non-billable time than billable time. Since a large portion of billable work performed by partners can be done by a staff person, firms need their partners to delegate billable work so they can focus on growing the firm, making it more…
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…
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