Highlights of Managing Partner Panel – Part Two

Recently, the Virtual Roundtable Group (VRT), a managing partner group founded by Art Kuesel and Marc Rosenberg, convened an in-person meeting in Austin, TX, to exchange ideas about CPA firm best practices. Kristen Rampe of Rosenberg Associates expertly led the group discussions. The firms ranged in size from $10M to $30M and were located from coast to coast. Many great ideas were put on the table – and this blog summarizes the best.

This is part two of the recap. Read part one now.

In this post, we continue our list of key takeaways from the VRT meeting of managing partners.

Partner evaluations. In case you need reminding, one of the main purposes of a performance appraisal is to improve performance, both by recognizing accomplishments and counseling the person on potential improvements.

At many firms, staff work their way up to partner, receiving regular performance appraisals. But when someone becomes partner, partners stop having performance evaluations. Are they immune from improving? We’ve all heard this. Makes no sense. Partners need regular performance feedback just as much as the staff.

One type of partner evaluation is self-evaluation. The group came up with a few suggestions for this evaluation:

• List by name the staff who have advanced under your tutelage.
• What have you done to replace yourself?
• What did you do to build a team under you? Be specific.
• What has been your personal mentoring process this year? Be specific.
• What would you like to do at the firm that you don’t have time for?
• Do your production metrics (finding, minding, grinding, etc.) tell the whole story of how you have contributed to the firm? If not, why? Be specific.

Partner compensation. Many firms have multiple tiers of income such as base, bonus, etc. The base is far and away the largest tier at most firms. But who established the rule that says the comp system should provide for equal bases? This makes little sense if your firm is truly committed to a performance-based partner comp system.

How CPA Firms Work: The Business of Public Accounting is a primer that explains how CPA firms work as a business. It is primarily intended for staff joining a firm, including new college graduates, experienced hires, and interns. Topics include why working at a CPA firm is a great career • CPA firm economics • industry innovations over the last 20 years • trends in the CPA profession • what it takes for staff to advance • the image of CPA firms • CPA firm management • how firms get clients • what attracts staff to CPA firms. Order your copy today!

Partner buyouts and client transition. For partners who have given notice of their retirement, firms should have a direct link between effective client transition and their buyouts.

Leadership development. Our panel of firms are doing some impressive things to develop staff into leaders:

• Mentoring
• Partners delegating their smaller clients to managers; duties include maintaining relationships and billing.
• When a partner retires, a good portion of the retiree’s clients should be assigned to managers instead of partners. This practice applies mostly in cases where the managers have potential to become partners and/or the managers have strong leadership, interpersonal and client service skills.
• Outside training in business development.
• Asking them if they want to be a partner and addressing negative responses.
• Teaching seniors and managers the business of public accounting and how CPA firms work.
• Partners stop working excessive hours. Staff won’t want to be a partner if they see partners working “all the time.” Staff at clients of ours have told us this repeatedly.
• Conducting post-mortems on big client jobs.

Partner compensation. Several firms are struggling with their comp systems being too heavily weighted for objective factors (production metrics) and too lightly for subjective factors (teamwork, helping staff learn and grow, leadership, firm management, etc.) The two best ways to address this are (a) creating a compensation committee that has the freedom and responsibility to consider objective and subjective factors and to use their good judgment in allocating income, and (b) goal setting that clearly states SMART (specific, measurable, attainable, realistic and time-bounded) goals for each partner for both objective and subjective factors.

Addressing the shortage of staff. A few firms are hiring non-accounting majors (English, finance, economics, etc.) and training them in basic accounting skills, both in a classroom environment and especially through on-the-job training. Rosenberg shared that in discussing this tactic with the MP of a $12M CPA firm, the MP said, “Most of the accounting work our staff (and some non-delegating partners) do is not that hard. They can be taught how to do this work without an accounting degree.” Outside-the-box thinking.

The election of a compensation committee. Rosenberg shared an experience he had with an eight-partner firm on a partner comp project. This firm had been using a modified pay-equal system for years. Wisely, they realized a change was needed and opted for the comp committee system. During the first year of the committee’s deliberations, it became clear that one partner’s performance and behavior was so poor that the committee came close to recommending that he be terminated.

During the first year of using the committee, all went well. To stagger the terms of the CC members, one of the two committee slots was up for election in the second year. To the horror of the CC, the partner who nearly got terminated was elected to the CC! The MP led the CC in concluding that no way, no how should this poor-performing partner be on the CC. As a result, the CC chose the partner with the second most votes.

The absolute key to a successful comp committee is that all CC members need to be highly credible in the eyes of the partners. The partners must trust the CC to exercise good judgment in making the income allocation and to be fair and unbiased. Without this, the system is doomed to fail.

If you’re not yet a part of a partner-peer group outside of your firm, you should consider joining one. We offer several roundtables, along with Art Kuesel and many CPA firm associations and similar professional groups.