Meyners Does a Reality Check

EXECUTIVE SUMMARY

Four years ago Meyners + Co. began an intensive business development initiative to align staff performance and compensation with its core values and competencies to better prepare employees to handle additional work. Difficulty in executing the plan surfaced over time. The core of Meyners’s training is developing demonstrable competency in seven key areas: client development, client management, business management, technical expertise and work quality, personal participation and professional development, leading and developing others, and administration. The firm adopted pay-for-performance compensation designed to reward employees who (1) exemplified the firm’s core values, (2) mastered the core competencies required at their level and (3) contributed to the firm’s overall strategic goals. The program had a three-tiered structure: salary, general bonus and firm-profitability bonus. But administering it involved a lengthy, data-intensive review and elaborate numerical calculations based on multiple evaluation forms filled out annually by supervisors, staff and peers. When the firm did not meet its goals and the third salary component wasn’t given, some staff members felt unfairly punished. Meyners launched a firmwide survey and found that not all the news was bad. As a result, the firm kept its competencies and values unchanged, simplified the pay structure and offered employees other career-development rewards. Kerry A. McDonald is president of Point of Action LLC, a full-service Boston training consulting company for CPA firms ( www.pointofaction.net ). Her e-mail address is kmcdonald@pointofaction.net .

hen Meyners + Co. first embarked on its business development initiative, the big picture seemed simple: It would align staff performance and compensation with its core values and competencies to better prepare employees to handle additional work. Training was the key to getting the firm’s professionals to internalize values and skills appropriate for each level. The motivator was supposed to be the firm’s newly designed compensation system, which would reward staff members for their increased productivity.

The difficulty, as it turned out, was in the execution. Recently Meyners decided its bonus system just wasn’t working as expected. The firm continues to consider staff members its most important resource and to invest in their development, but it now is trying out a revised compensation structure. Here’s a look at the growth plan and how management modified it to better fit firm culture.

The core of Meyners’s training was and is developing demonstrable competency in seven key areas: client development, client management, business management, technical expertise and work quality, personal participation and professional development, leading and developing others, and administration. In addition, Meyners established a set of core values that all employees commit to, including tenets such as “collaboration” and “commitment to quality and responsive client service.”

ROAD MAP TO REWARDS?
The seven key areas function as a professional road map for staff career development. Under “client management,” for example, Meyners expects new employees to learn about each client organization and to support the engagement team. It expects senior-level staff to identify client issues, formulate solutions and show leadership in client meetings. And it expects managers and senior managers to be responsible for client relationships and for teaching junior-level staff how to identify and resolve client issues.

To reinforce the successful integration of these competencies and values, the partners adopted a three-tiered pay-for-performance compensation plan (salary, general bonus and firm-profitability bonus). The goal of the pay structure was to reward employees who (1) exemplified the firm’s core values, (2) mastered the core competencies required at their level and (3) contributed to the firm’s overall strategic goals by, for example, obtaining certain professional certifications or meeting chargeability goals.

The process the partners used for administering the system involved a lengthy, data-intensive review. They based their numerical bonus calculations on multiple evaluation forms filled out by supervisors, staff and peers during an annual 360-degree feedback process. The forms quantified employee achievements, such as demonstrating 75% of core competencies for a certain level or meeting 50% of the core values goal or meeting goals for firm profitability. If staff performance contributed to the firm’s overall objectives and the firm met its yearend financial target, the employee also would get part of the firm-profitability pool.

Meyners had tailored the plan—which had low salaries to adjust for its generous bonus potential—to give employees the incentive of “ownership.” The idea was to reward them in proportion to their efforts as reflected in an improved bottom line. Unfortunately in the two years the system was in operation, the firm did not meet its goals. When profits didn’t grow as planned, the third salary component never was offered, causing some staff members to feel unfairly punished.

KEEP IT SIMPLE
Steven Kerr, a professor of organizational behavior at Ohio State University, said in his seminal article “On the Folly of Rewarding A, While Hoping for B” ( Academy of Management Journal, December 1975) that “a formal reward system should positively reinforce desired behavior, not constitute an obstacle to be overcome.” Meyners + Co.’s three-tiered pay-for-performance system, with its rigorous calculations, frustrated staff and partners alike. It was an obstacle negatively affecting the firm.

“It was confusing,” acknowledges senior accountant Eddie Vasquez, CPA. He aired his concern, echoed by other employees, at a monthly staff committee meeting at which 10 staff members and senior representatives from across the firm met with a staff-selected manager who served as liaison between staff, managers and partners.

“Everyone was talking about pay-for-performance and the bonus pool, but none of my peers knew exactly how it was calculated,” Vasquez says.

To find out what the issues were, Meyners, in early 2005, launched a firmwide employee survey to solicit feedback. It also contacted employees who had left the firm since the system had been adopted. Not all the news was bad. “They loved the core competencies and values,” says Bruce Malott, CPA, the firm’s managing partner. “Tying bonuses to them wasn’t successful, but using them in assessing behaviors was.”

MIDOURSE CORRECTION
Meyners needed to change the system and to readjust salaries kept artificially low to offset the high bonus potential. To find the best way to address widespread staff dissatisfaction and determine the compensation levels that would best attract and retain talented professionals, firm administrator Sherri Bornhoft conducted thorough research on national salaries for accountants using a variety of accounting-specific and general salary sources, including salary information from Robert Half and Monster.com.

As a result Meyners eliminated the bonus structure and boosted base compensation amounts at each staff level. “One of the decisions we consciously made,” says Thomas F. Burrage, CPA, Meyners’s litigation services partner, “was to stay competitive with salaries on a national level.”

Tips for Pay for Performance

Align rewards and performance. Identify key performance competencies the firm expects staff at each level to master and link compensation to them. Get employees involved early. Soliciting employee input gets employees to buy into the compensation process earlier and better understand its goals and results. Keep it simple. Avoid the urge to use calculators and complex numerical formulas to determine bonus eligibility. Use evaluation forms that include both quantitative and qualitative assessments of performance, as well as discussions with supervisors, to determine compensation increases. Provide resources. Help employees to achieve high performance standards by providing technical and nontechnical training programs that reflect performance competencies. Maintain open communication. Host monthly meetings with employees and send frequent e-mails and voice mails to solicit feedback on initiatives and to reinforce firm goals and outcomes. Ensure that partners meet regularly to discuss staff performance benchmarks and to evaluate, compensate and promote employees with consistent fairness. Be willing to change. Periodically reassess pay-for-performance initiatives and organizational enhancements to determine strengths and weaknesses. Develop, implement and communicate necessary changes firmwide.

COMMUNICATING CHANGE
The partners held a firmwide meeting to explain to staff members what their base salary increases would be and how the adjustments had been determined. The new amounts encompassed the average bonus most employees would have received that year and cost-of-living adjustments for future years. The firm announced to its relieved employees that the numerical bonus formula was history, although it would consider values and competencies for evaluating future salary increases.

To ensure open communication and allay lingering anxiety, Bornhoft had each Meyners partner block off time during the following week to field any questions about the new system. “We wanted staff to know we felt very positive about the change, but if they felt differently we wanted to know right away,” says Bornhoft. Only a few concerns surfaced, and they were quickly addressed. “I thought the changes were very fair,” says Vasquez, who thinks his peers will be happier with moderate yearly increases rather than bonuses based on confusing criteria.

As to whether staff will be motivated to perform at the highest level if the firm doesn’t use bonuses as a reward, Vasquez says, “Most of us want to do our best.” Malott agrees.

Despite the firm’s hopes for a sure-fire strategy to inspire top performance, it recognizes the issue is complex and requires being open to new things. “You have to be willing to change based on the results,” says Malott.

PROFITABILITY, RETENTION AND SIMPLIFICATION
Overhauling its compensation structure for the second time in two years might seem like enough change for a while, but Meyners chose to tackle even more operational enhancements brought to light in its 2005 survey. The partners focused on practice management initiatives in three primary areas: profitability, staff retention and policies and procedures.

Just one month after simplifying its compensation structure, Meyners tackled staff retention. It launched MCO University, an internal training program linked to its core competencies and values and designed to encourage firmwide interaction and employee satisfaction. Courses range from technical training in accounting and tax to time-management and productivity. The firm even sponsors lunch-time tai chi and yoga classes (see “ Outrageous Employee Benefits, ” JofA , May05, page 32). “Our goal is to enhance recruitment and retention by making this firm the best place to work,” Malott says.

This goal comes with a hefty price tag. In 2003 Meyners spent $100,000 on an executive coach to help people improve their skills and internalize the firm’s values. “Our commitment was to get a process that would work for us,” Malott says. “If you focus solely on the costs, you’re not going to do it.”

Despite the firm’s substantial investment in training and staff development, Meyners’ profitability is “not that out of line compared with our peer companies nationally,” says Burrage.

Is the investment paying off? Partners and employees say the more training staff get, the easier it is to keep them. “Staff members see the firm investing in them and are motivated to stay,” Vasquez says. “And new kids coming out of school say, ‘Wow, look at all this training I can get to sharpen my skills.’”

LOOKING AHEAD
Meyners will continue its training and retention initiatives and keep internal communication channels open. “If I had it to do over again, I would survey the staff sooner,” Malott says. Weekly firmwide e-mails now keep all employees up to date about firm goals and strategies related to profitability, retention and simplification. Monthly committee meetings continue to uncover and address concerns. Meyners also plans to survey employees annually to identify new issues and opportunities for improvement.

When Meyners began its organizational upgrade in 2002, it expected challenges. Some, such as integrating new core competencies and core values into the firm culture, met with quick success. Others, such as pay-for-performance, were flawed. By listening to employees, acknowledging mistakes and making changes where necessary, Meyners continues to push forward. It expects its new training and development initiatives to enhance staff recruitment and retention—and the firm’s bottom line. So while 2005 was a year in which Meyners + Co. took a step back and reassessed its strategy, it also was a year in which the firm recommitted with renewed energy and optimism to what it began almost four years ago.