Retaining Top Talent Still a Requirement for Firms
Focus on people now to keep turnover costs down when the economy improves.
For years, finding and retaining staff were the top two concerns of management at public accounting firms. But when the economy soured, client retention quickly became the top issue for CPA firms of all sizes, according to the 2009 PCPS CPA Firm Top Issues Survey, a biennial survey of public accounting firm owners on their greatest practice management issues. At first glance, it appeared that firms would need to completely change course and focus on nonstaffing issues. But client retention and other firm goals can only be achieved by having staff members who possess the knowledge and skills to get the job done. Treating people as your greatest asset is essential to a firm’s success.
From a dollars-and-cents perspective, turnover is a serious business factor that all firms should monitor. When the economy turns around and business picks up at larger firms, those firms will start hiring again. Firms and corporations will again be in a talent war for CPAs. When and if a team member voluntarily leaves your organization, you will spend a great deal of time and money hiring a replacement (see sidebar, “Lose People, Lose Money”). Don’t wait until then to focus on retaining your best people. Consider the following ingredients of staff retention success now to ensure the well-being of your firm and its members.
CULTURE IS KEY
The initial step in achieving retention success is instilling in the firm’s culture that people are the top priority. This must come from the top of the leadership hierarchy and flow down through the organization. Building a cohesive staffing system—one in which each function, such as recruitment, training and performance management, is integrated with the others—will demonstrate a commitment to the people power of your company and will regularly breed retention efforts. Effectively managing and retaining today’s human capital is a continual process that is affected by every policy, procedure and decision related to your people. It is in a firm’s best interest to view retention not as a separate initiative but as inherent to firm culture. When retention becomes a priority, that mindset flows through the firm and staffing programs will naturally gravitate toward maximizing employee satisfaction and retaining the best and brightest talent. A culture based on retention promotes positive energy and the desire for employees to stick around because they belong (see sidebar, “Hiring? Get It Right the First Time”).
Client Retention the No. 1 Concern
The 2009 PCPS CPA Firm Top Issues Survey showed that CPA firm owners from every size firm ranked client retention as their No. 1 concern. Tax law complexity, new standards for small firms, keeping up with standards and work/life balance initiatives were among the top five issues for small firms (sole practitioners and firms with two to five CPAs). Staff retention and marketing/practice growth appeared on the Top 5 lists for firms with six or more CPAs. To learn more, visit tinyurl.com/lpofln PCPS CPA Firm Top Issues Survey.aspx.
PERFORMANCE MANAGEMENT
A solid performance management system is a valuable tool for retention because it provides feedback, which helps improve employees’ comfort levels, while involving them in setting goals that are in line with firm objectives. Good performers want to be held accountable. Managing performance throughout the year through predetermined written goals helps them achieve that accountability. Additionally, giving and receiving feedback throughout the year empowers team members to keep communication lines open and to develop mentoring skills.
The system should be based on a common foundation, such as a competency model, that applies to all levels within the firm. For example, a competency model helps managers to counsel poor performers because it displays the behaviors and actions that team members should be demonstrating. If poor performance is recognized and dealt with properly, one of two things should happen. The team member will improve and thus become a contributing part of your staff. If performance does not improve, the firm will be in a good position to terminate the individual. Both outcomes are great for the firm and for the remaining team members because there will be one less issue that takes time from focusing on top performers, and accountability will be visible and clear.
Some firms are taking their performance management systems in new directions to improve retention rates. RSM McGladrey began revamping its system two years ago to help employees understand their career path options and the skills needed to get there.
McGladrey’s performance management approach allows employees to receive regular feedback, using career development guides and resources to learn about career options, and meeting regularly with a career adviser, who can help them develop the skills needed for the next level. For example, the career adviser looks at the next job profile and engages the employee in conversations about the appropriate engagements that individual should be assigned to, what role he or she should play, what his or her competency gap is and the training and skill-building steps that are necessary to help close the competency gap.
“Our system is designed to really focus on the longer term and developing our talentpipeline, not just looking back over the last year at performance,” says Kimpa Moss, CPA, RSM McGladrey’s chief human resources officer. “We started this back when retention rates were lower. We listened to what our people wanted. In order for them to be able to see a long-term career at McGladrey, they needed more resources devoted to career development and to engage in discussions with individuals who can help them achieve their career goals. We never wavered on this when the economy went sour.”
The McGladrey system ties compensation to the individual goals of both the adviser and advisee, and is just one example of how firms can incorporate the wants and needs of individual team members into performance goals, measures and incentives.
COMPENSATION AND REWARDS
Compensation is a seemingly obvious retention tool, but no single approach will work for all firms. A firm’s method for compensating employees should be based on specific goals and needs. By tying a portion of a team member’s salary (including bonuses) to individual performance goals as well as firm initiatives, a firm can reward top performers and motivate employees to achieve their best. This is called a pay-for-performance system and is designed to take both financial (objective) and nonfinancial (subjective) measures into account (see the AICPA publication Compensation as a Strategic Asset). For a pay-for-performance system to succeed, a firm must define its mission, vision and core values so that firm members have a clear understanding of why the firm exists, what its goals are, and the culture in which everyone will coexist.
To further enhance a pay-for-performance strategy, a customized win-win compensation agreement can be developed for each team member. The agreement can be as simple or complex as desired, but it should outline goal categories (or buckets of measures, such as financial, client activities, business development, etc.), specific goals and measures. (Employees of PCPS member firms can find sample win-win agreements on the PCPS Human Capital Center Web site. A single sample, applicable to managers, is also available to download here.) Again, each firm should develop unique and dynamic win-win agreements based on its vision and strategic initiatives.
Compensation is only one component of an overall retention strategy. To find out what other types of opportunities and benefits your employees are looking for, ask them. “We try to make everybody feel important at our firm by listening to what they have to say. After all, they’re on the front lines, and they make or break the firm. The younger people want a title and want to know where they’re going and what to do to get there,” says Margaret McConnell, CPA, managing partner of Marsh & McConnell, an 18-member firm in Atlanta.
Your firm may offer a seemingly extraordinary incentive that the staff couldn’t care less about, but what they do want is more paid time off and the option to telecommute, for example. “Work/life balance is very important to us as owners, and we want our employees to know that we really mean it,” says Laura Concannon, CPA, a principal at Vardavas & Concannon, a six-person firm in Baltimore. It is part of her firm’s retention strategy to offer employees options beyond monetary incentives. For example, they offer telecommuting options and four weeks of paid time off. “You get more done at work when you have that balance,” Concannon says.
Use the discussions that occur during weekly staff meetings, recruiting, new hire orientations, and counseling/mentoring sessions to learn what motivates your staff or potential hires. Then try something new and test it.
Top Talent Values Career Growth
The 2006 PCPS Top Talent Study showed that top performers chose a firm for career growth opportunities (80%) and paid time off (79%) about as much as for salary (78%). The survey respondents said top talent stays with a firm based on respect for the company’s mission statement (93%), career growth opportunities (92%), and salary (89%).
LEADERSHIP AND MENTORING
Firms that are seriously committed to hanging on to their best people should show that they promote and develop leaders. “You can’t wait until the pressure is back on to decide you’re going to do something about developing a career,” Moss says. “These are continuous investments that need to be made, regardless of external circumstance.”
For the partners in McConnell’s firm, this meant opening their eyes to the need for change. “You cannot run the firm the same way as in the past—everything changes: the people, the economy,” she says. Her firm implemented the PCPS Firm Competency Model, which provides a framework of objective criteria that sets expectations and provides a focus for career planning, professional growth and development, and performance assessment and reward. This allowed younger staff to gauge where they stood within the firm and what it would take to become partner. (For more information on the PCPS Firm Competency Model, go to RETENTION IS CULTURE, NOT A LIST OF BENEFITS
The biggest lesson in building retention is to remember that opportunities are everywhere, not just in salary and benefits. Retention begins before you hire someone and carries through all firm activities. If you treat your team with respect by showing them how important they are to the firm’s success, they will be happier, more highly motivated and ready to give back to the firm. People don’t just come to work for you because they want money. Team members also want opportunities to demonstrate performance against goals and to show leadership. Such an open and nurturing culture will be attractive to outsiders, and then the cycle will repeat.
When it comes to talent, firm size is of no consequence. If you’re small, large or somewhere in between and you’ve taken the appropriate steps to attract the right people, hang on to them. “In our profession, we can never take our eye off of working to keep our people happy,” Moss says. “You leave yourself with a hole in your pipeline if you do.”
Regardless of the state of today’s economy, CPAs are in the knowledge profession. And future success and profits could depend on your retention strategy.
Click here to download a sample win-win agreement, applicable to managers.
Click here to view “How to Retain Staff,” a video featuring the AICPA’s Mark Koziel, CPA.
Even using conservative assumptions, a firm could easily spend $32,500 to replace a team member. Some assumptions used in this example are for a midsize firm with $1 million annual profits and an average salary of $60,000. Our assumptions provide a low turnover cost compared with some firm estimates. Yet you can still see, given the 20% to 25% annual turnover rate many firms experience, how reducing annual turnover to 5% to 10% could boost profits.
In the last year some firms have been through staff reductions that kept turnover in the 20% to 25% range they were accustomed to. While there may have been a short-term savings in payroll, you can see that the long-term costs of turnover directly affect profits.
Assumptions
| Average salary | $60,000 |
| Payroll tax | 25% |
| New hire ramp-up time | 8 weeks |
| Total employees | 100 |
| Orientation training hours | 25 |
| Average number of new hires per orientation | 1 |
| Trainer hourly rate | $150 |
| Estimated recruiting cost (out-of-pocket expenses for items such as advertising) | $10,000 |
| Average number of weeks to fill position | 4 |
| Average number of candidates per position | 5 |
| Average candidate selection and interview hours per candidate | 5 |
| Substitute employee hourly rate | $40 |
| Recruiter hourly rate | $150 |
| Approximate annual profit of firm | $1,000,000 |
Cost Per Person
| New employee lost productivity (ramp-up time x salary) | $9,000 |
| New employee training (orientation hours x trainer rate) | $3,750 |
| Recruiting cost | $10,000 |
| Candidate selection and interview cost (selection and interview hours x recruiter rate x number of candidates) | $3,750 |
| Substitute employee cost (weeks to fill position x substitute rate) | $6,000 |
| Total turnover cost per person | $32,500 |
| Turnover rate | 25% | 20% | 15% | 10% |
| Turnover per person | $32,500 | $32,500 | $32,500 | $32,500 |
| Total firm turnover cost per year | $812,500 | $650,000 | $487,500 | $325,000 |
| Turnover cost as a % of annual profit** | 81.25% | 65% | 48.75% | 32.50% |
**Turnover costs are based on a one-year operating assumption.
Note: The assumptions and cost per employee are based on simplistic calculations for illustrative purposes only.
Hiring? Get It Right the First Time
Retention starts when you begin the hiring process. There is no point in retaining the wrong people. “We hire with the expectation of having happy employees,” says Laura Concannon of Vardavas & Concannon.
Evaluate candidates based on a predetermined set of criteria tied to the firm’s core values. A behavioral-based interview approach uses open-ended questions to determine if a recruit has demonstrated critical behaviors in his or her past. Because past behavior typically dictates future conduct, asking about a candidate’s past is highly effective in determining if the person would work well in your organization.
Personality tests (Myers-Briggs Type Indicator, DiSC, Strengths Finder by Gallup, Color Code, Kolbe Index or Predictive Index) can help you further analyze the fit between the candidate and the firm. A personality test supports, but does not replace, the interview process and should only be used to support the determinations made during the interview and to develop follow-up questions for the candidate.
Help New Hires Assimilate
The first days, weeks and months at a new company can be very stressful for new hires. It is to the firm’s advantage to soothe anxieties by providing essential information such as firm contact names and numbers, a list of clients, firm vision and mission statements, and time with vital team members and clients. This should all be coordinated during a dedicated orientation process that begins the day the person starts with your firm.
Some say that you never get a second chance to make a first impression. This adage holds true in the case of onboarding, or the mainstreaming process of acquiring, assimilating and accelerating new hires to get “on board” with the firm’s culture, methodologies and procedures. A Corning Glass study showed that employees who completed an orientation program were more likely to remain with the organization three years later versus those who did not complete the program. It is often during this initial three- to six-month time frame that a person decides to leave a company.
EXECUTIVE SUMMARY
Recent economic factors may have diverted focus away from staff retention in CPA firms and more toward client retention, but ultimate success depends greatly on your firm’s talent.
Heidi Brundage (hbrundage@aicpa.org) is a technical manager in the Private Companies Practice Section at the AICPA. Mark Koziel (mkoziel@aipca.org) is the director of the Specialized Communities and Firm Practice Management teams at the AICPA.
To comment on this article or to suggest an idea for another article, contact Loanna Overcash, senior editor, at lovercash@aicpa.org or 919-402-4462.
AICPA RESOURCES
Article
“The Economics of Outrageous Work Life Balance Initiatives,” by Richard J. Caturano, with an associated cost/benefit analysis
Publications
- Compensation as a Strategic Asset (#090493)
- Employee Retention Guide: How to keep your top talent on board
- PCPS Human Capital Center (HCC) Toolbox Series—white papers that introduce the tools included in the 11 sections of the HCC, such as Team Recruitment, Orientation/ Assimilation, Performance Management, Reward & Compensation & Incentives and Owner Development
- Share. Learn. Grow. Mentor.: A how-to guide from the AICPA Women’s Initiatives Executive Committee
- The PCPS Top Talent Study: Gaining a Strategic Advantage in Recruiting and Retention (#018202PDF)
Conferences
- AICPA Practitioners Symposium, June 7–9, Las Vegas (includes a session on “Retaining Your Top Talent,” hosted by Heidi Brundage and Mark Koziel, on June 9)
- AICPA’s Emerging Partner Training Forum I, June 22–23, Scottsdale, Ariz. (includes “Growing your Leadership Talent and Influence” session presented by Leslie Murphy on June 23)
- 2010 Controllers Workshop West, July 20–21, Las Vegas (includes “Retaining Top Talent” sessions presented by David Barletta)
- AICPA’s Emerging Partner Training Forum II, Aug. 11–12, New York
For more information or to make a purchase or register, go to cpa2biz.com or call the Institute at 888-777-7077.
Private Companies Practice Section
The Private Companies Practice Section (PCPS) is a voluntary firm membership section for CPAs that provides member firms with targeted practice management tools and resources, as well as a strong, collective voice within the CPA profession. Visit the PCPS Firm Practice Center at aicpa.org/PCPS and the PCPS Human Capital Center at tinyurl.com/kkxc3v.
