CPA Insider

Be strategic when awarding raises and promotions

Choose the right carrots and sticks to motivate your staff.
By Blake Christian, CPA

Now that the economy is recovering from the Great Recession and demand for CPA services is rising, firms have ramped up their hiring. But demand for experienced accountants, especially seniors and managers, outstrips supply. In a “seller’s market” like this one, staffers who are unhappy with their jobs may be tempted to seek work elsewhere. Awarding the “right raises” and promotions is the first step in getting them to stay with your firm.

Nevertheless, with some vision and fortitude on management’s part, the current environment offers a unique opportunity to develop a more sustainable and effective workforce. Having a solid review and reward process is one way to do so.

Here’s some advice for a successful review period:

Gathering feedback

  • Lay the groundwork for reviews and compensations long before midyear (or whenever your firm typically gives out raises). Your evaluation processes should occur throughout the year and include goal-setting, evaluation, monitoring, and opportunities for gathering feedback. Pair less-experienced employees with senior ones who can coach them and assess their performance. Then, when the post-busy-season review period arrives, you will have structures in place that will allow you to collect rich and useful feedback.
  • Partners should solicit both upstream and downstream written feedback from all professionals who have had significant projects over the past busy season. Solicit their input on how the partners and firm are, or are not, providing adequate resources and growth opportunities for the staff. An open dialogue can reveal some simple fixes as well as deep-rooted issues. Administrative personnel should also be asked for their feedback, as they can often provide valuable input on the organizational skills, efficiencies, and attitude of the professional staff.
  • Employees and their mentors should have review sessions during which they go over past goals the employee established, and set new ones. Personally, I prefer to have employees come to these sessions with an assessment of the goals they attained in the prior period, as well as a list of future goals, since this allows me insight into their motivation, commitment, and common sense.
  • Evaluate both employees’ hard and soft skills during the review process: their technical and compliance performance as well as their administrative, morale-building, and mentoring skills. If the partnership track is a possibility for certain managers and staff, discuss that career path with them. Tell them about the general timeline and the firm’s expectations for making partner, and document the discussion.
  • When you’re thinking about compensation and perks, don’t make the mistake of assuming everyone on your staff wants the same things. With a multi-generational workforce composed of Boomers, Millennials and Gen Xers, you need feedback on what each group truly values. While Boomers may value hard dollars most, for instance, Millennials may prefer flexible start times or improved technology (including lightning-fast Wi-Fi) more. Knowing what your employees value will let you apply future spending for maximum impact.

Determining compensation and promotions

  • Setting new compensation structures typically involves both re-setting base salaries and establishing bonuses for certain professionals. If employees are paid a salary rather than being paid hourly, chargeable hours and total hours worked during prior measurement periods should be factored into their overall compensation package. Hourly employees should already be getting paid for their overtime.
  • Have your HR department or Compensation Committee monitor local and regional compensation trends to establish benchmark minimum and maximum salary increases at various levels. This data can generally be obtained through your state or local CPA Society, economic development groups, the economics departments of larger universities, and trade organizations such as Chambers of Commerce.
  • Sometimes partners give employees higher raises or bonuses than their performance merits. Fear of an employee leaving should not control the raise and promotion process. Remember that your other employees are also watching these outcomes, and that you may end up creating deeper, long-term problems by coddling poor performers. Beefing up your recruiting efforts will give you more flexibility in the long run to make the right decisions on compensation and promotions.
  • One of the hotly debated issues in the profession is how to best compensate long-term “career” managers or principals with no prospect of being promoted to partner. While my position may fall into the minority view, I believe that while career managers who simply maintain a steady book of work are valuable to the firm, they cannot be rewarded with double-digit increases year after year without significantly draining a firm’s profitability. I recommend that these senior managers/principals’ (pre-bonus) base salary compensation only be increased by roughly a cost-of-living factor annually, along with any necessary “market” correction for any local salary increases. Any compensation they receive above this cost-of-living adjustment, in my view, should be tied to specific bonus criteria such as above-average chargeable hours, realization, practice development efforts, training, or other contributions. By establishing and adhering to a true “pay-for-performance” bonus structure for career senior managers/principals, your firm can maintain the proper billing rate multiples and profit margins and provide the proper motivational criteria for those in this group.

While you are going through this time-consuming process, it is important to focus on 360-degree communication throughout the firm. Once you are done, clearly explain why people are rewarded at different levels. Be tactful, but not so tactful that you sugarcoat things. Likewise, encourage staff and managers to be forthcoming with upstream input. Again, clear and frank discussions, while difficult in the moment, will pay dividends in the long run.

Blake Christian, CPA/MBT

Blake Christian, CPA/MBT, is a tax partner in the Park City, Utah, office of CPA firm HCVT LLP.


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