‘Tis the Season – The Comp Committee Season

CPA firms across the country are gearing up for the tax/busy season, and with the year rapidly coming to an end, the Compensation Committee (CC) season is kicking into gear as well. Now is the time which marks the beginning of the CC’s deliberations.

The comp committee system is by far the most common partner comp system in use at firms of 8 partners or more. According to the the latest Rosenberg Survey, 56% of all firms with 8 to 12 partners use the CC method; 68% of firms with 13 or more partners use it.

The CC system is the method of choice because:

• It aligns partner comp with what the firm needs from its partners.
• It’s the best way to balance production rewards and intangibles rewards.
• It avoids formulas which lack the freedom of thought needed to do #1 and #2 above.
• It avoids formulas which allow partners to “game” the system.

Ten tips for how YOUR Compensation Committee can hit a home run

1. Communicate.  If the partners don’t understand how the CC works, and don’t understand how their income was determined, the system will fail.
2. Identify how each partner contributed to the firm having a “good” year and reward accordingly.
3. Align compensation with what the firm needs from each partner.
4. Link compensation with achievement of the firm’s strategic plan.
5. Resist the temptation to equalize final distributions.  Only through a quirk of fate will all partners be equal contributors to the firm’s performance.
6. Resist the temptation to use a formula at any stage in the process – it defeats the purpose of the CC approach, which is to allow a small group of highly credible judges to use their brains instead of their calculators to allocate income.
7. Make sure that the managing partner’s input on overall partner performance has more impact on income allocation than any other single partner, including CC members.
8. Be sure to reward intangibles (management, mentoring staff, teamwork, loyalty) as well as traditional production measures (book of business and billable hours).
9. Resist the temptation to adjust the final income allocation to avoid a “war” with a problem partner who will go ballistic if he/she sees an income number that fails to meet expectations.
10. The CC’s work is not yet done after finalizing the income allocation.  The CC needs to communicate (there’s that word again) to the partners, one-on-one, why they received the income number given to them and what their goals and expectations are for the coming year.