Comp Committee Project: The Simplest Consulting Job I Ever Had

I love my job. CPA firm partners are wonderful to work with. The projects are interesting and challenging. CPA firms pay well and on time. Almost all of my consultations have a medium-to-high level of difficulty. Nothing is ever easy. This is mostly a good thing. But sometimes, I wish I had a job that was simple. I have had a few projects over my 20 years that came close to simple. Here’s one of them.

The client was a very profitable, 10 partner CPA firm on the west coast. The MP contacted me and said that their partner comp system was a mess. My typical partner comp project is a hectic, tense, two-day project on site. The first day I conduct confidential interviews of each partner. The second day, after spending a couple hours digesting the interviews and doing a little planning, I convene a meeting of all the partners.

Here’s what I learned from the interviews: (1) They used the comp committee format to allocate partner income. (2) They used the CC format for many years and it was considered very successful. (3) During the most recent year, the comp process was a disaster, by all accounts.

What could possibly have gone wrong? The answer is incredibly simple. This firm had an MP that I consider one of the most credible, accomplished, revered MPs I’ve ever had the good fortune to work with. In prior years, the MP had served as the chair of the comp committee and did a fantastic job, keeping the peace, steering the committee in the right direction without being biased or self-serving and using her leadership skills to lead the committee. And, perhaps most important, the CC delivered compensation numbers that the partners thought were fair and reasonable, year after year.

But in the most recent year, something important changed. The MP took herself completely out of the compensation process. Her intentions were laudable: She wanted to help other partners develop their leadership skills and thought that by bowing out of the comp process, the other committee members would rise to the occasion, manage the comp process flawlessly and gain valuable experience that would help them grow as leaders.

Unfortunately  the opposite occured. The CC failed to be objective, arrived at self-serving decisions, failed to review the necessary data and as a result, made snap judgments that couldn’t be defended or explained. As a result, all the other partners were unhappy about their compensation.

From my interviews on day #1, I learned the gory details. During the group meeting on the second day, I did 4 things: (1) Summarized the interviews per the paragraph above. (2) Told the MP to put herself back on the CC. (3) Got all 10 partners to agree with my recommendation. (4) Taxied to the airport 4 hours early.

Moral of the story: MP’s should be automatic members of the compensation committee. They should continually and actively assess the performance of each partner and form judgments on the extent to which they met their expectations and achieved their goals. This is critically important knowledge that no other partner has. The MP needs to ensure that the firm’s income is allocated based on the partners’ relative performance and the only way to do this is to chair the comp committee.

The Compensation Committee is the Cadillac of partner comp systems for CPA firms, especially firms with 8 or more partners. It’s the best way to achieve a healthy balance between traditional production metrics such as book of business and billable hours, and intangibles such as loyalty, teamwork and living the firm’s core values. Makes sense, right? But the devil is in the details. Managing and organizing a comp committee doesn’t come easy to CPAs, especially those new to it. How To Operate A Compensation Committee provides a step by step guide to how a comp committee works.