Reward Partners For Performing Like Partners

Marc Rosenberg, CPA / Nov 25, 2019

Any of you who started out as sole practitioners surely remember that it was you – no one else – who made your firm successful.  You brought in the business.  You did top notch work and delivered it on time. You nurtured and grew your client relationships so they came back asking for more.  When you hired staff,  you who were responsible for keeping them busy and training them how to do the work.  If you took days off from these activities, guess what?  No one did it for you and your firm suffered as a result.

Then your firm evolved.  You brought on a second partner, and a third.  Instead of one or two staff, you had six or eight.  You added admin staff to free the partners up to do more client work.  Your firm continued to grow.  Possibly you merged into another firm.  And now you’re a partner in a 10 partner, $14M firm with 80 people.

The standards for performance when you were a sole practitioner were sky high.  Why should these standards be any lower now that you are a partner in a $14M firm?  They shouldn’t be.  But  if you’re like most firms, the standards have eased considerably.

This article suggests that you should keep your partner performance standards high.  Here’s how.

  1. When you are a partner, there are no guarantees. All partners should look at themselves in the mirror every morning and ask:  “What am I going to do today to make money for my firm.”  To paraphrase the famous JFK quote:  “Ask not what your firm can do for you; ask what you can do for your firm.”  I see far too many partner comp systems with 2 or 3 tiers of income, one of which is a minimum base salary which in many cases, is equal or nearly so for each partner. And the total of this tier is often 50% or more of total partner income.  When I ask these firms why they have the guarantee, the response is something to the effect of “it represents a minimum salary that we are all entitled to.”  Hogwash, I say.  All it does is reduce by at least half the extent that your compensation is truly performance-based.  Partners should not be paid for mererly showing up.
  2. Every year, partners need to EARN their compensation. No coasting because that’s what retirement is for.  No complacency for when complacency sets in, stagnation quickly follows.  Revenues to each client should not stay the same each year – partners need to grow the fees to their clients over time.  A meaningful amount (at least 20%) of total partner income should be based on “what did you do for me lately?” (what did you do to build the firm this year?).  It’s OK to pay for historical performance, but make sure you pay handsomely for current performance too.
  3. Partners should be accountable for their behavior and performance 24/7. No one is above the law.  All firms should have partner performance appraisals, especially upward partner evaluations by the staff, because everyone can and must improve. A common apocryphal partner quote goes like this: “I’m all for partner accountability…as long as it doesn’t affect me.”  Don’t let this become the standard attitude among your partners on accountability.

CPA Partner Compensation:The Art and Science covers►Partner comp 101 ► the 12 systems used by all firms ►how to design your firm’s system ►open vs. closed systems ►the role of “book of business” ►differences between large and small firms’ systems ► the MP’s compensation ► trends and controversies  ►overall best practices

  1. Why do 70% of all CPA firms fail to implement their strategic plans? Because they create a wonderful, innovative, creative plan and stop there.  They fail to do the most important steps:  (a) assign goals and action steps to the partners to help the firm achieve its plan (b) establish accountability for performing these goals and (c) don’t use goal achievement as a factor in allocating partner income.  The easy part is creating the plan.  The heavy lifting is the execution and that’s what the partners need to do.
  2. Ask a group of partners at any conference if their staff are just as important as their clients. Almost everyone says yes.  But take a look at their partner comp systems and show me where a meaningful amount of partner compensation is linked to the job they do mentoring, nurturing, training and retaining staff.  You’ll have to look long and hard because it’s really hard to find.  I’ve heard this maxim hundreds of times over the years:  Partners should be doing two main things:  messing with your clients and messing with your staff.
  3. If you’re not a builder or a driver, you shouldn’t be an equity partner. Go back to your days as a solo.  Back then, you had no choice but to be a driver.  Firms need to keep the bar high for what it takes to become a partner and what it takes to remain a partner.  Yes, bringing in business is a big part of being a builder.  But there are many other important leadership factors that partners do to drive the firm.
  4. Embrace and be passionate about the one-firm concept. Partners should contribute to the firm’s ongoing succession plan by continually asking themselves this question: “If I should suddenly leave the firm, will my clients stay?”  Answering yes to this question requires partners to function as a team member, not a Lone Ranger.  They should be creating multiple touch points (meaningful personal contacts) at their clients so that if the main partner is not available, the client has someone else to call that they know well.  Partners should be good teammates to their other partners, bringing them into their clients when needed and assisting others when requested.  No partner should ever hoard clients and billable hours when the work can be delegated to other firm members.

In addition to the usual production metrics (finding, minding and grinding), the above performance attributes should be cherished in your firm and be important factors in allocating partner income.

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