| FIRMS THAT PUT PRODUCTIVITY
CRITERIA in writing help principals
stay focused on growing the firm as well as the
bottom line. |
ACCOMPLISHMENTS include the number
of new engagements, realization and niche
development. Personnel development, image
building and public relations are important
partner accountabilities, too.
ONE FIRM DEVELOPED A
incentive compensation plan with
seven accountability categories: business
development, book production, billable hours,
hours managed, realization, managing the firm
and process improvement.
THE FIRM MEETS WITH EACH
PARTNER to decide goals in each
category based on his or her abilities and
firm aims. Each partner’s 40-point weighting
is spread across the seven categories. The
partner’s final score determines his or her
share of the allocation incentive pool.
ANOTHER FIRM FINDS THE
KEY to meeting practice development
targets is to clearly define all partners’
roles every year. To track how partners meet
accountabilities, the firm uses three forms.
AN OBJECTIVE'S WEIGHT
DEPENDS ON subjective factors that
include the partner’s opportunities and
aptitude and the firm’s development aims.
|MICHAEL HAYES is
a senior editor on the JofA . Ms. Hayes
is an employee of the AICPA and her views, as
expressed in this article, do not necessarily
reflect the views of the Institute. Official
positions are determined through certain
specific committee procedures, due process and
he goal of a partner compensation plan
is to inspire each principal’s most profitable
performance—and make a firm grow. When a CPA firm’s
success depends on partner contributions other than
accounting expertise—such as bringing in business,
developing a specialty or being a good manager—its
compensation plan has to encourage those qualities,
for both fairness and firm health. A program of
written goals and evaluations that links pay to
accountability is a strong motivator. Firms that have
clear communication with principals about their
progress help partners stay focused on practice
development as well as the bottom line. The catch:
There’s no one-size-fits-all formula for accomplishing
this. This article describes a couple of approaches to
keep track of—and reward—partner productivity.
yearly performance reviews are common at
staff level, firms use highly structured
documentation less frequently at the partner
level, several CPAs say. Some partnership
agreements specify what’s expected in terms
of leadership, dedication, cooperation with
other partners, work quality and quantity,
responsibilities for training and managing
staff, and standards for servicing and
keeping clients as well as attracting new
ones. Others do not. At some firms, partners
still set their own goals to align with firm
goals and write self-evaluations at year-end
(see “ You Want to Minimize the Pain
,”at the end of this article), while
other firms use a more buffered goal-setting
and evaluation process.
|In 2001 CPA firm
partner bonuses averaged $44,000,
compared with $53,800 in 2000.
Average compensation, however,
rose to $244,000 from $224,000.
Office Management and
Institute of Management
Accounting, New York City.
Strictly linking desirable partner
qualities to measurable outcomes can be hard to do.
Good judgment, efficiency, diligence, timeliness, a
knowledge of applicable laws and accounting
pronouncements, the ability to analyze quickly and
accurately, to write and speak effectively, to plan
and implement legal strategies and to handle the
unexpected are the underpinnings of outstanding
partner performance. They’re important to encourage,
as is how well partners support personnel development,
niche development, image building, public relations,
firm growth and their own—and others’—personal growth,
says Richard Kretz, CPA and managing partner of
Kostin, Ruffkess, a 13-partner, 130-person,
Farmington, Connecticut, firm. When the managing
partner or compensation committee decides what to
reward and puts the firm’s partner productivity
criteria in writing, it results in a more evenhanded,
growth-focused process, as the following examples
A SCORECARD SYSTEM
Ness PC—a 12-partner Pennsylvania firm with about 80
employees and offices in York, Hanover and Gettysburg
and niche subsidiaries SN Business Solutions LLP
(technology and management consulting) and SN Advisors
LLP (investment and financial advisory
services)—tracks and rewards partner performance using
a “principal scorecard” compensation system. It was
the highest-rated practice management suggestion from
a 50-tip roundup offered at a recent CPA conference.
The firm’s three-person executive committee—Steven H.
Klunk, CPA, president and CEO; Steven L. Hake, CPA,
secretary and COO; and Thomas J. Moul, CPA, treasurer
and CFO—last year engaged management consultant Robert
L. Bowersox to help them develop the plan. It is a
tiered reward system that focuses on seven performance
areas. Partners who score well share an incentive
allocation pool in addition to their salary
distribution. The highest scoring partners also share
a bonus pool. Exhibit 1, below, shows a scorecard
comparing five hypothetical partners, who each earn a
base salary of $80,000 per year and share an incentive
allocation pool of $150,000.
Partners’ Scorecard |
|This compares performance for five partners.
Their performance scores in important firm
categories (left) are the basis of the pay
calculations (below). The incentive allocation
pool is shared by all five partners in this
exhibit. The bonus pool is split among the three
highest scorers. Every partner’s weighting mix
is unique. Principal A has a weighting of 10 in
four categories and Principal D has a weighting
of from four to 10 in five categories,
reflecting the respective contributions A and D
are expected to make in these areas. |
Source: Stambaugh Ness
PC, York, Pennsylvania.
To start, the committee meets with each
partner to discuss his or her skills as well as what
the firm’s goals are. Depending on the shareholder’s
experience and interests, they set out the partner’s
objectives for a range of three to six practice areas.
Accountabilities are “weighted” (something like a golf
handicap), but each partner’s total weighting is 40—no
matter how it’s spread across categories. A principal
who scored perfectly in all applicable categories
would get 400, which encourages partners to compete
with themselves instead of each other, the firm says.
The firm monitors a partner’s progress over the year,
using the most objective data available. Quarterly
performance feedback is part of the process, which
includes suggested adjustments as needed.
executive committee evaluates partners on the
Business development. The firm
gives rainmakers the flexibility to hunt for business.
It has two of them on board and measures their success
in developing new contacts and cross-selling business,
including work that goes to other partners.
Book production. Each principal
increases his or her own roster of clients (“book of
business”), provides additional services to existing
clients or obtains referrals for the subsidiaries.
Billable hours. The executive
committee and partners agree on a goal for billable
hours. Weighting encourages highly productive
principals with strong technical skills to work on
business others bring in.
Hours managed. Every engagement
has a principal designated as “owner,” who is credited
with the total number of billable hours. The plan
tracks how efficiently partners with large books of
business delegate to other principals and staff, and
it encourages partners to do high-level work that
Realization. The executive
committee takes stock of whether partners have
delegated work profitably, whether they’ve billed
aggressively and whether they’ve brought in
Managing the firm. This category
primarily applies to partners of the executive
committee, who must answer for firm profitability,
growth and overall culture. It’s the most subjective
area to gauge and it chiefly measures net profits vs.
Process improvement. This tracks
partners’ efforts to develop more efficient systems
and infrastructure and to grow niche services. For
example, for audits, reviews and compilations, the
measurement criteria are cycle time, realization and
hours vs. budget. The firm asks for grades from
clients as well as staff.
After tabulating the
positive scores, the firm addresses other factors it
terms “hygiene” issues. Because the responsibilities
that fall within this category are considered basic,
partners aren’t rewarded for them, but failing to
attend to them carries a penalty. Hygiene issues have
a total weight of negative 20 and can cost a partner
up to 200 points. They are
Account management. Partners are
measured on whether they bill regularly and assist in
Personal planning. Partners are
rated on their personal involvement in working with
the executive committee or its designees to carry out
specific business-development and process-improvement
goals and on assisting others.
Recording time. To keep the firm’s
work in process and billing up to date, principals are
expected to keep accurate, daily time records.
SOCs (situations, opportunities, concerns).
Another partner responsibility involves
logging all new-business or expanded-service
opportunities for the business-development tracking
system so they can be flagged for follow-up. The
information is shared weekly with the entire staff.
Firm support. Partners are
expected to be a positive force with other principals
and staff. This includes furthering firm initiatives
and processes and bringing concerns to the executive
committee in a timely manner.
partner compensation is made up of two main
components. The first—an equal amount for all
partners—is multiplied by the number of partners there
are. The firm compares that base-salary total with the
firm’s partner-compensation budget. The difference
becomes the firm’s incentive and bonus pools, which
the executive committee allocates after it ranks the
partners’ scorecard results from highest to lowest.
Partners have to get a minimum score of 250 to be
included in the bonus pool. “It’s our intention to
reduce the base salary each year and allocate more and
more based on scorecard results,” says Moul.
PARTNER ROLES…AND TALK OFTEN
George Cumpata, CPA and managing partner
of the 20-partner, 150-person Chicago-based
Gleeson, Sklar, Sawyers & Cumpata—a
full-service firm with niches in litigation,
business valuation, real estate development
and disaster planning—places a high value on
communication. It helps keep everyone in
tune with the firm’s goals, he says. “The
key to a workable compensation system is to
have clearly defined roles for all your
partners,” says Cumpata. After that, “you
really have to find ways to communicate. The
biggest downfall firms encounter stems from
lack of communication—and it gets tougher as
your firm gets bigger.” (See “Say It Again,
Cumpata, who was on
the five-partner compensation committee for
several years prior to becoming managing
partner (and head of the committee) six
years ago, says a firm needs to adjust as it
grows. “We’re three to four times the size
we were six years ago. Growth is a good
thing, but along with the increase in size
you have to build processes that accommodate
it. A firm with 150 people operates very
differently from a firm with 45,” he says.
Small practices can keep their compensation
systems simple and egalitarian; midsize and
fast-track firms need plans that allow for
growth; and large firms—where management
can’t know every partner personally—need to
rely more on objective data, he says.
The firm has three levels of partners:
equity, income and associate, with a
slightly different base pay by group. They
span all ages—from CPAs approaching
retirement to those in their forties and
early fifties to an “aggressive” group of
younger partners. The firm’s compensation
program must marshal the group’s diverse
abilities and help partners meet development
goals. “At our firm we redefine our roles
every year, a process that takes about three
weeks for 20 partners,” he says. The
exercise is the baseline for each partner’s
|Say It Again, Sam
At profitable firms
with high levels of growth, it’s
not uncommon for partners to be
supportive, work as a team and
refer clients to one another. The
key is partner relationships, and
strengthening them helps ensure a
firm’s future success. Where
conflicts could drain energies and
drag down profitability, a firm
must create avenues for clear and
frequent communication. To
encourage a free flow of
information that supports meeting
firm targets, the partners should
Take time for a
spontaneous face-to-face chat or
lunch at least once a week.
Tell other partners
what’s going on in their area of
Be clear with each
other about what they expect.
Hold monthly partner
Use meetings to
tackle major issues before turning
to the little ones.
Consider conflict an
opportunity to resolve problems.
retreats—with enough lead time to
develop an effective agenda for
To set out accountabilities and track
how partners meet them, the firm uses three forms. The
first form lists objectives, and the principals
specify their annual goals on it. Exhibit 2, below,
shows how a hypothetical partner, John Smith, might
fill it out. The first column presents a “menu” in
four categories, and from it Smith chooses 1A as a
goal (engagement referrals). In the second column, he
has written down a specific objective of getting two
referrals worth a total of $25,000. He continues down
the list and enters other objectives as appropriate.
The executive committee and partner give each one a
“weight,” entered in the third column. An objective’s
weight depends on subjective factors that include the
partner’s opportunities and aptitude and the firm’s
Put Objectives in Writing |
Source: Gleeson, Sklar,
Sawyers & Cumpata, Chicago.
Exhibit 3, below, shows the “report card” for
gauging the partners’ performance. At yearend, each
partner enters a self-evaluation in the first column.
(The numbers and capital letters in exhibits 3 and 4
refer to corresponding accountability items in exhibit
1.) The firm’s compensation committee uses column two
to do its own evaluation. Then it meets with each
partner individually, after which it calculates the
performance-based portion of compensation. Exhibit 4,
below, records the dollar value of the partner’s work
for the year and whether he or she achieved the goals
set out at the beginning of the year. “Each committee
member calculates a little differently, but they’re
never too far apart in their judgments about what a
partner should get,” Cumpata says.
Judge Performance ||
||Exhibit 4: A Performance Tally
Evaluation (Accomplishments) |
Gleeson, Sklar, Sawyers & Cumpata,
||Reconciliation of Client Ledger
Source: Gleeson, Sklar,
Sawyers & Cumpata, Chicago.
There are no absolutes—except that there are
as many different types of compensation packages as
there are CPA firms, and business is always in flux,
says Cumpata. A smaller firm must adjust its partner
rewards to targets as it grows, he advises. Partners
have to understand the “big objectives” and work
closely with other partners. “As our organization
grew, I came to the conclusion I needed partners with
a broader view. We look for partners who are
entrepreneurs—who can build a business presence as
well as bring in work. You have to be able to do the
technical work competently and be a businessperson
today,” says Cumpata.