CPA Firm Comp Committee Members Are Like Judges

The heart and soul of the Compensation Committee (CC) method for allocating partner income is this:

The system can only work if the people being judged are willing to trust the judges. Period.  If the partners aren’t comfortable with this, then they should not use the CC.

The following quote is excerpted from an article entitled “The Ideal Judge,”  by South African Chief Justice, M.M. Corbett.  Despite the article’s obvious intent to describe the ideal qualities of a courtroom judge, the parallels to a CC member are striking.

Said Corbett:  “If I were to attempt to sum up in a few words the qualities which ideally a judge should have, I would say knowledge, experience, judgment, independence and character.”

What are the ideal qualities of a CC member? A good list would include the following, all of which relate to at least one of the qualities above:

Be fair and unbiased. Avoid any perception of being self-serving.

Recognize both results and efforts in evaluating a partner’s performance.

Evaluate how each partner performed vs. what was expected.

Recognize intangibles.  Look at both traditional production (Finding, Minding and Grinding) and intangibles (teamwork, interpersonal skills, management staff mentoring, work ethic, etc), making sure that one isn’t valued so highly as to render the other inconsequential.

Avoid being overly conservative. Be open to handsomely compensating the top performers and scaling back the comp of those who did not meet expectations, regardless of the “pecking order” or their present compensation.

Be brave; be bold.  Some partners have reputations for “going ballistic” when they get upset or things don’t go their way.  A good CC member is willing to recommend compensation amounts to these volatile personalities fully knowing that they may be publicly and vociferously confronted by these partners.

Do your homework.  In sports, players are frequently voted to all-star teams based on past achievements, even if this honor is unwarranted based on present performance.  Don’t let this happen in the comp committee.  CC members should carefully study all data collected by the committee and avoid making quick, impulsive judgments or listening to hearsay.

Communicate with crystal clarity. CC members should be prepared to explain and communicate their judgments and decisions, both to the partner group as a whole and one-on-one with partners.

Announcing our newly expanded and updated monograph HOW TO OPERATE A COMPENSATION COMMITTEE.    Topics covered include: Why firms use Comp Committees * Make-up of the Committee * The Judges * Compensation Systems Used Depending on Size of Firm * Data Reviewed by the Comp Committee * How Committee Decisions Are Made * Assessing Partner Performance * Partner Base Salary and Bonus * Communicating with the Partners * Open vs. Closed Systems * Best Practices

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