Getting Buy-In on Partner Compensation Changes

You may have seen my interview earlier this year with Russell Shapiro on the topic of partner compensation. We spent close to 45 minutes discussing various aspects of allocating CPA firm income. One of the many topics we discussed was how to get buy-in on changes to a partner compensation system.

Change management is the heart of any comp system update. Determining what would best serve a firm is almost (almost) the “easy part.” Figuring out how to get buy-in for these important and sensitive changes is where a large part of the work takes place.

If this is a project your firm is embarking on, I’d suggest the following approach to achieve the best possible buy-in.

1. Be thoughtful about who works on design changes.

At a smaller firm, it could be all partners if there are, say, five to six or fewer. When you get upwards of eight or ten partners, there are too many cooks in the kitchen. Ideally, you’d identify a compensation design committee or task force that has four or five representative partners, more for larger firms, who can work through the project of aligning your updated system with your firm’s goals and objectives.

If you’re the size where all partners are in the room for the project, buy-in is typically easier because they were all there when decisions were made and were able to voice their opinions.

2. Model out the new system to confirm its effects.

Most often, buy-in stalls when partners are concerned about any of the following:

• Their compensation going down (typically a concern with underperforming partners)
• Their valuable contributions not being recognized
• Complexity or lack of understanding of how it works
• Uncertainty over how much money they’ll make (notably when moving away from a strict formula)

When a design team models out how the system might work – using prior year figures plus a growth factor, say – it can highlight issues with complexity or lack of clarity. Work to reduce complexity where appropriate, and create succinct documentation to advance clarity. This modeling and documentation is critical to convey to all partners that the changes are appropriate and valuable.

A well-run comp system should also be able to afford partners some visibility into a range of likely income, based on reasonable assumptions about firm and individual performance levels. Occasionally, owners need to be reminded that their income is not guaranteed and can’t be perfectly projected. It’s only once the firm’s final figures are known and the allocation determined that they will really “know” what they’re going to make. Conservative individual income ranges presented early on each year can go a long way toward easing “what am I going to make this year” concerns and improving buy-in.

CPA Partner Compensation: The Art and Science is your ultimate guide to understanding and optimizing the complex landscape of partner comp. Our book covers: Partner comp 101 • Explore and understand the 12 systems used by all firms • How to design your firm’s system • Open vs. closed systems: Understand the distinctions between them • The role of the book of business • Differences between large and small firms’ systems • MP’s compensation • Operating a compensation committee • Linking partner compensation with strategic planning • Explore the metrics and data used to evaluate partner performance • Compensation nuances • Trends and controversies • Case studies • Best practices

Demystify partner comp for your firm and purchase your copy today.

3. Share the process and draft changes via partner workshops.

Hosting partner workshops (small groups) gives you a forum to explain the process the design team went through and the proposed changes and why they are beneficial to the firm. It’s also a good time to answer questions and listen for potential reasonable changes. Each of these aspects fosters buy-in without reducing the effectiveness of the proposed compensation system.

Having an outsider explain the process, changes, etc. can be a big help here, because they don’t have a horse in the income allocation race. When we work with clients on partner compensation, our job is to help you get to a plan that works for your firm.

For example, with one client, we hosted a partner workshop to share the process and draft system with 17 partners. We conducted a straw poll at the end of the workshop to gauge whether they felt they would likely approve the proposed changes at the next partner meeting. The straw poll results were 15 “likely to approve” and two “not sure.” In this case, the results were in a pretty good place. The two “unsure” partners would benefit from outreach and additional listening. The goal is not to require 100% or unanimous approval – that is likely unachievable – but to help as many as possible feel comfortable or at least understand the “why” behind the change, even if they don’t agree.

4. Make adjustments and recommunicate.

You may need to make changes after the workshops in light of information you learned or concerns you heard. For example, perhaps the emphasis on an important performance area wasn’t clearly articulated. If it’s of value to the firm, figure out where it fits into the plan. Showing the design team’s willingness to adjust based on feedback builds trust in the process and the system.

Re-communicate with owners after the workshops if any modifications are made.

5. Move forward.

Remember that at the heart of any income allocation re-design is a drive to improve partner performance and accountability, as well as firm performance.

Leadership groups or comp task forces need to keep things moving along and eventually get the updated system approved and implemented. Having a sufficient project plan and team oriented toward execution makes a big difference.

What changes are you considering in your compensation system? We’d love to hear about them in the comments below.