Compensation as a Strategic Asset: The New Paradigm

BY LOANNA OVERCASH

by August J. Aquila and Coral L. Rice
AICPA, 2007, 190 pp.

Compensation is a complex matter for most firms, with money being only one aspect of the equation. This book begins with a look at recent (past 25 years or so) paradigm shifts that have contributed to changes in the accounting profession including: a global economy and outsourcing; increased regulation; technological advancements; work/life balance; talent shortages; and fee pressures.

As consultants to the profession, the authors have also witnessed paradigm shifts in public accounting firm owner compensation plans that revolve around attracting, rewarding and retaining top performers. “Successful firms develop and implement processes that fundamentally change and nurture the relationship between owners and employees and the firms for which they both work,” they say. The new approach moves beyond traditional measurements and focuses on people by linking performance with effective compensation plans and aligning financial rewards with strategic direction. Evaluations based on customized criteria and goals, current production and future capacity, and at-risk compensation are a few examples of the changing approaches.

The authors break down compensation components in Chapter 6 (base pay, return on capital, bonus and return on equity) and examine the current criteria that many firms use to evaluate performance. The base pay discussion strives to answer these difficult questions:

What is the base value of any given position?

How much should you pay?

How do you determine what pay should be?

An assessment of current compensation methods in Chapter 7 helps the reader understand how these methods have contributed to firms’ success or prevented firms from reaching their full potential. The methods discussed include formula, equal pay, the managing owner’s choice of method and compensation committee methods. Recognizing that no single compensation system will solve the problems of every firm, the authors describe the elements of a good plan and best practices to consider in designing a new system.

As the accounting profession continues to adapt to evolving complexities, it is clear that compensation is another area where firms must embrace change. The book lays out a framework and methodology for firm leaders and owners who are interested in learning how to align compensation to their firm’s mission, vision, values and goals. When compensation is used effectively as a strategic asset, a firm will see improvement in the recruitment and retention of valuable staff as well as its overall profitability.

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