Applicability Of An Incentive Compensation System

Although the incentive compensation system described in “Incentives for Growth” (JofA, Jan.99, page 107) works very well for the firm of Bargsley and Associates, it may not be a format that all CPA firms can use. I believe firm size and personalities have a material effect on the success or failure of such a system.

Some random thoughts on this interesting article:

• There is no indication whether “staff” includes the two partners or how the partners are compensated. This issue could have a significant effect on the mechanics of the plan.
• The percentage of fees collected is not discussed. How does staff and partner compensation compare to that of other firms of comparable size?
• With each client assigned to a primary in-charge accountant, do clients stay or leave when one person leaves the firm?
• Does the term primary in charge include or exclude a partner? Will the client really know anyone else in the firm?
• How can two staff members and two partners possess all the skills necessary in today’s complex practice to service all the needs of their clients?
• Is there a back-up plan if the firm loses 25% of its staff or partners?
• When a new staff person who has no clients enters the firm, who gives up part of his or her billing for the initial period?
• How often are client problems discussed by the group, and how is the time billed to the client and allocated to the partners and/or staff?
• What criteria does the firm use to make a staff person a partner?
• Although it is highly commendable that the firm requires 80 hours of CPE per year, who pays for it?
• We all learn a great deal from our clients, but, as indicated in the article, there is very little time to learn from colleagues at staff meetings.

My concerns may sound both negative and problematical because I believe the applicability of such an incentive compensation program is limited to a relatively small number of practice units.

Sidney F. Jarrow, CPA, CFE
Glencoe, Illinois