Poll Results: Staff Bonus Programs

Well-designed staff compensation programs can be a huge asset for any CPA firm looking to retain top talent. That’s you, obviously. But what should you do? What should you change? Below, we share results and analysis of our recent poll on staff bonus programs and ideas for how you might update yours.

We asked respondents to evaluate the statement “Our staff bonus program effectively motivates and rewards the performance our firm needs.” 42% of respondents felt neutral; 30% agreed; 18% disagreed; with 5% in both the strongly agree and strongly disagree categories. Over 85% of our respondents had 100 or fewer employees.

If over half of bonus programs fall into the “meh” or “nah” categories on effectively motivating and rewarding, what can we learn from those who feel they do have a good program?

Here are some comments from those who said “agree” or “strongly agree”:

• “We have three distinct bonus structures: one is production based on a formula, one is discretionary and determined by partners, and [a third is] a CPA pass bonus as an incentive to pass the exam.”
• “$7,500 bonus for hitting 1,700 charge hours for Supervisor and below. 1,500 for Manager.”
• “Our bonus program consists of an after-tax season bonus and end-of-year bonus, which is a relatively fixed amount with a few high-performing individuals getting larger bonuses. Our staff also gets compensated for any additional hours worked above their planned amount and are compensated for new clients brought into the firm.”
• “We do 2 separate bonuses, one after 4/15 and one after 10/15. It is a way for us to share firm profits with our key staff. Generally, $5K–$10K range. We are a leveraged firm with fewer shareholders than most firms, so this model allows us to treat Managers and Senior Managers somewhat similarly as a profit partner. It also seems to be a good retention tool; folks look forward to healthy bonuses. We don’t vest them; we give them earnings outright and run the risk that they could accept the bonus and leave the firm…that is a risk we are taking.”
• “We used the utilization numbers as a guide but want to reward the effort for the team also. We believe it’s appreciated but always worry that it will not be enough. Probably like everyone else.”

On occasion, firms provide a large amount of compensation tied directly to performance, often in the areas of charge hours or billing (vs a more modest bonus added on to a market-rate base salary or hourly rate). Below is one respondent’s description of their program, which they agreed was effective in motivating and rewarding:

• “Staff who are primary on a client receive 10% of collections annually with no end date. Staff who exceed expected charge hours receive bonus based on hours in excess of expected charge hours.”

The Middle of the Road (might not be all bad)

The most common response to our “motivating and effective” statement was neutral (over 40%). This is consistent with our experience working with small- to mid-sized CPA firms. One big challenge with any bonus program, especially when a meaningful portion is tied to specific and narrow financial metrics, is that human nature makes it hard to resist gaming the system. Thus, even if a program works great to incentivize what your firm needs this year, it’s likely in 2-3 years you’ll have developed good practices in those areas but are losing ground in others.

That doesn’t make incentive programs a losing battle; however, just one that needs regular maintenance and oversight to make sure it’s still working for your firm.

Here are some key comments from our neutral respondents.

• “Each office MP has 2% of total salary to bonus at their discretion for whatever type of ‘above and beyond’ performance they want to recognize.”
• “Our Bonus Program is only for managers and above. At times, we provide discretionary bonuses to other team members.”
• “Bonus is based on firm profitability/employee performance and target is 10% of base. The reality is that we are trying to keep staff, so it doesn’t take much to pocket the 10%. Maybe a top performer receives more.”

Some firms do not pay bonuses but pay strong base salaries instead.

For firms paying total comp at or above market, this approach (no bonus, just high base comp) can work when coupled with high standards and accountability internally—including terminating low performers. No one wants to work with a highly compensated peer who doesn’t pull their weight.

Here are some thoughts from firms who don’t pay bonuses, and how they rated their system in parentheses following:

• “We don’t pay bonuses; we pay what we consider to be fair salary up front.” (neutral)
• “We do not routinely pay bonuses because we pay above market salaries to all staff and always have. Thus, we pay when someone does a superior job or performs in some capacity that benefits the firm more than expected or directed.” (neutral)
• “We historically have given a 7% bonus annually as long as staff meet their goal for chargeable and total hours. We have just switched to include the 7% in base compensation. Moving forward, bonuses will be discretionary.” (disagree—but not sure if disagreement was to the new program or the old)

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What not to do

Here were some sentiments from those who disagreed or strongly disagreed with their bonus program being effective:

• “Bonus is not tied to performance. It is paid more as a holiday gift at year-end.” (strongly disagree)
• “We don’t have a formal ‘program’. All very arbitrary from year to year depending on individual performance.”
• “It is very subjective, not clear or concise, so staff would not really know how to improve other than billings/billable hours in general.”

One type of bonus that is consistently underwhelming to the staff you’re working hard to retain is one that’s arbitrary or unclear. This doesn’t preclude having a portion of a bonus (or possibly all) tied to discretion of management; you just need to be clear about how discretion will be used.

Mitigating that lack of clarity

Take these two examples of how a bonus program that is not formulaic could be communicated.

Option 1: “We sometimes pay a discretionary bonus; it depends on how the firm does and how you do the things we expect of you. You should know what they are. We can’t really say how much the bonus will be each year because we won’t know until the end.”

Option 2: “We pay a discretionary bonus each year-end. It is often between $1,000 and $4,000 for Seniors, but the amount depends on how the firm as a whole performs each year. Managers give input to partners, who determine bonuses based on the following factors: (1) charge hours compared to baseline by level per our Charge Hours Expectations document; (2) training and mentoring of less experienced team members; for example, participating in our buddy system, hosting trainings, high-quality review notes and discussions; and (3) general expectations per our Expectations of All Team Members document; for example, meeting deadlines, technical accuracy, and positive attitude.”

Option 1, in addition to giving your team feelings of ambiguity and uncertainty (not advised), also highlights the firm’s lack of ability to plan and budget as an employer organization. Of course, as owners you don’t know what you’ll get until the end of the year, but it seems reasonable if staff expect you to be able to figure out (and meet) a profit goal that would allow for at least a modest bonus for employees.

Most employees aren’t competing with you because they don’t yet have the skills or interest in the risk/reward of business ownership. Leave that with the owners (and upcoming partner candidates). That’s not to say you don’t want to incentivize “thinking like an owner,” but you need to pay up when they do their part, even if you may have missed your own overall firm profit goals.

Related to that, here are some comments from our readers on bonus program design, and how they rated their bonus program in parentheses.

• “We have tried to establish a bonus pool but now realize that we need more criteria in order to communicate with staff what the goals of the program are.” (neutral)
• “The subjective nature component is important to reflect the ‘non-numbers’ impact a staff may have on the firm. The numbers component drives behavior because accountants lean towards the concrete and measurable. Some important staff behaviors are difficult to measure or value, hence the necessity for a subjective component.” (neutral)
• “Calculation based on productivity is working well, but [we] need to add incentives for other important items for a well-rounded plan.” (neutral)

How much is being paid?

Over half of our 150 respondents paid out 5%–10% of compensation as a bonus.

The breakdown between payouts for direct financial measures like charge hours and less direct intangibles like training others and overall performance is as follows:

Conclusion

There’s no one-size-fits-all staff bonus program for accounting firms. We do know that a lack of clarity around what is rewarded brings the most dissatisfaction. Some firms find success with above-market base salaries and no bonus program. Others find success with clear incentives targeted towards the actions and behaviors the firm most needs to attain. If your bonus program isn’t working well, revisiting it can breathe fresh air into this important retention play for your firm.

What are your staff bonus stories? We’d love to hear your comments below. Tell us what you do, and please include whether or not you think your program is successful.