Difficult Partner Dynamics Part 2: Compensation Effects and Silver Linings
Kristen Rampe, CPA / Sep 3, 2025
Welcome back to our analysis of insights from the Difficult Partner Dynamics Quick Poll conducted in August 2025. If you missed our first blog in this series, catch up here.
In this post, we explore how unresolved partner issues affect compensation and, more importantly, look at ways to resolve them. We’ll also share real-life examples of the silver linings that emerged when firms worked through difficult partner dynamics that didn’t serve their best interests.
Partner Compensation Impact
Every CPA firm has a threshold where issues are too small or short-lived to warrant any compensation adjustment. But as challenges grow or drag on, does it become appropriate for there to be an impact? I believe so.
Some stories I hear have clear-cut financial impacts—like a $2.4M firm where one partner carried $2M in WIP (yes, you read that right, and $1M of it was over six months old). Others aren’t as easily quantified but are equally damaging, such as a firm with someone who “passive-aggressively undermines decisions made by the partner group.”
In either case, there often comes a time where adjusting compensation is the logical step, given the detriment to the firm.
Here’s data from our 127 respondents:
Strategies to consider
Some of the partners answering our poll were able to point to strategies they had used—whether in process, anticipated or completed—to work through their challenges:
- We are attempting to resolve it through the addition of a partner compensation plan tied to individual partner goals that are set to be in line with firm strategy.
- In progress. Docked pay in CY. Performance will need to improve in order to stay a shareholder.
- Provided admin help; set goals tied to compensation.
- Brought in a 3rd party facilitator who helped to work through the situation.
- Partner 360 reviews and face-to-face discussion.
- Public accountability and visibility of the partner’s actions, having admin team nag them, and generally making clear their behavior is unacceptable and client service is not an excuse.
- Still present, but we have modified our partnership agreement to attempt to rectify this issue in the future. Retirement payments can now be diminished if there is a loss of clients.
- We stepped down compensation and agreed to a 5-year plan to get the individual to retirement. We removed the partner goals associated with growth and staff development and focused on the individual’s strengths and a reasonable compensation and ownership package that matched those strengths. With a timeline associated with the decision, it was able to be effective for all.
- Merged with another firm.
- Retirement.
- The partner was asked to leave the firm.
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Silver linings: Benefits from working through challenges
Many respondents included anecdotes about the positive outcomes they had created or identified while working through the issues they reported. As while we may wish we never had to face such challenges, resolving them often builds strength both organizationally and within the leadership group.
Here is a summary of the positive outcomes firms reported as they came out of the trenches on a partner dynamics issue:
1. Accountability and compensation improvements
• Implementation of a new partner compensation system tied to performance
• Increased partner accountability
• Transition to more transparent compensation conversations
2. Operational and financial improvements
• Redeveloped billing practices and better WIP monitoring
• COO’s focus on timely billing from each partner
• Increased visibility on issues
• Increased profitability once resolved
• More efficient departmentalized profit/loss accountability by partner
3. Cultural and relationship benefits
• Improved culture and employee satisfaction; staff and partners saw the firm address issues quickly
• Maturity in working through problems; partner unity and cohesion of remaining partners
• Greater alignment, collaboration, and healthy working relationships across partners
4. Governance and firm development
• More formal client transition processes
• Increased discussions and open feedback
• Stronger governance and communication at the partner level
• Development of manager-level talent for future partner roles
• Succession planning pressure increased partner group discipline
• Recognition of the need for modernization (technological and structural)
5. Long-term strategic outcomes
• A stronger, better, and more profitable firm
• Partners are more business-minded
• A more aligned company
• Increased awareness among clients of firm quality
• Partner in question eventually became more positive and less harmful
• Ongoing accountability initiatives were implemented
Your path forward
Overall, firms need strong leadership to weather challenging partner dynamics. Without it, the negative effects—financial and cultural—only intensify.
Do you have what it takes to make the important, sometimes difficult decisions needed to move your firm forward? Establishing effective governance and leadership, implementing a dynamic, performance-based partner compensation system, and aligning values and goals are all critical to a public accounting firm’s ongoing success. That’s what our industry needs.
2 Comments
CPA Firm Partner Compensation: The Art and Science
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I’m curious if you would speak to how a AAV retirement system is in place, where partners earn it from the growth of the firm or from taking over the debt to pay out retiring partners. As partners get paid out their AAV at retirement (over a period of time; and there is a limit how much can be paid per year), but they also earn compensation based upon the AAV times a rate (that is either paid in cash to the partner or is used to fund the payouts of the partner they acquired the AAV from).
The issue that we are running into is that the pool of partners has shrunk, so what was 10, is now 5. There are a handful of income partners that may become equity partners. But they are unsure if they want to continue at the firm or strike out on their own, as under the current system they would only get the AAV growth (as there are no retirements for 5-6 years) but then 60%+ of the AAV will pay out. And the income partners maybe have 15 years run way from now to mandatory retirement. As the firm is also slow on promotion to partner (usually in early 40s).
Do you have any suggestions? As currently it seems like the income partners are potentially getting the short end of the stick, as they need to accelerate getting more partners promoted behind them, have a short run way (so that a fair bit of the AAV they get will not be paid off by retirement, lowering their payouts). And at the same time, the 2 partners with the majority of ownership seemed to “luck” into their position (being the last people standing from former retirements and not addressing the lower number of partners; and the lowest partner is has compensation about 1/6 of the top earner; there aren’t large difference in books of business or new business generation between the partners).
Great question, John. Many of these retirement systems can be tricky to navigate, depending on changes in the firm’s partner composition and growth. In all cases, a buyout is predicated on new partners willing to join the ownership group, make the payments, and continue to earn their desired income/profit level. I think a call would be best to discuss your specific circumstances. I’ll reach out!