Why firms shouldn’t just pay CPAs based on their billable hours

Allan Koltin, CPA, CGMA, likes to use a football team as an allegory for how accounting firms should divide duties and compensate for specialization within their ranks.

You don’t ask a 300-pound lineman to try to outrun the defense and catch passes down the field. And you don’t ask a 180-pound wide receiver to stand in the way of a 280-pound defender who is pursuing the quarterback. The football team—and a CPA firm—are more successful when members are put in a position to capitalize on their strengths.

“You have to dig deep and really uncover what people are good at and like to do,” said Koltin, the CEO of Koltin Consulting Group and an expert in partner compensation. “I always say, exploit their brain for the greater good of the firm. Find out where their passions are. Get them to do a lot of that.”

At high-performing firms, Koltin said, there’s alignment among the partners on what skills each person possesses and which duties everyone should be performing. Their goals are set accordingly at the beginning of the year, and within the firm there is a system of coaching, mentoring, and accountability.

Everyone gets regular feedback and coaching throughout the year, and when there is a bonus at the end of the year, people know why they received the amount they were given.

Compensation of partners based on specialized work is growing, according to data from the AICPA Private Companies Practice Section/CPA.com National Management of an Accounting Practice (MAP) survey. In the 2010 survey, 30% of firms with $10 million or more in yearly revenue and 0% of firms with less than $500,000 in yearly revenue reported that training or mentoring activities were included in their partner compensation formulas.

By the 2016 survey, training or mentoring was included in the compensation formulas of 58% of firms with at least $10 million in yearly revenue, 15% of firms with $200,000 to $500,000 in yearly revenue, and 13% of firms with below $200,000 in yearly revenue.

Firm leaders say paying partners and staff to focus on their strengths provides dividends for the entire firm. Zook Dinon in Moorestown, N.J., has one technologically savvy partner, Andy Beck, CPA/CITP, CGMA, who spends 15% to 20% of his time coordinating with the outsourced IT service provider to make sure the firm’s needs are met. Meanwhile, Susan Haggerty, CPA, who became an equity partner on Jan. 1 and is one of the younger partners in the firm, coordinates recruiting and visits university campuses to meet with students. And Jack Zook, CPA/PFS, the firm’s managing partner, obviously devotes a large chunk of time to leadership duties.

Because these duties take away from their billable hours, their billing responsibilities are adjusted lower to allow them to handle their other responsibilities.

“You’ve got to find out what their strength is and learn how to use that person in a way that’s better for the firm,” Zook said. “People like to work with their strengths, and it’s when you’re weak on something that you tend to avoid it. So if you like something and you’re good at it, it fits naturally.”

Meanwhile, Denver-based Anton Collins Mitchell LLP is an 18-partner firm where firm partners’ goals are structured to maximize the firm’s success, with the strategy laid out each year at an annual meeting. ACM firm goals, compensation structure, and bonus plan are based on the AICPA Private Companies Practice Section’s Firm inMotion e-Toolkit.

Greg Anton, CPA, CGMA, the firm’s CEO and a former chairman of the AICPA board of directors, suggested that the firm use the AICPA PCPS Sample Win-Win Agreement, which helps firms develop individual agreements that detail partner and team member goals and align them with the firm’s strategic direction. The firm has tailored the tool over time to meet its needs. Anton, the firm’s executive committee, and the firm’s practice unit leadership team combine to fine-tune each person’s annual goals to align with the firm strategy discussed at the annual retreat.

Everyone from the firm administrator to the partners has goals that align with the firm’s goals, but it’s all kept as simple as possible. A one-page spreadsheet displays base salary, a few simple goals, and the weighting that each goal counts toward a bonus.

Although all partners are responsible for certain basic duties such as building their teams, maintaining their books of business, and selling new business, their goal weighting is aligned to their strengths. The partners who are better at sales have a larger sales goal, with smaller goals in other areas. The best technicians have goals that play to their strengths. Near-term retiring partners have goals aligned with transferring client relationships. The firm is open about the progress by the firm and the partners, and performance is discussed regularly at meetings throughout the year.

“I think everyone feels they’re working hard for a reason,” said Stacey Hekkert, CPA, CGMA, the firm’s president and managing partner. “They know what they’re doing and why they’re doing it, and when you bring the why together, it really helps.”

The partners also have niches based on their technical specialties, which benefits the firm. Capitalizing on their other strengths—whether it’s sales, developing people, or performing technical work—has helped the firm keep morale high.

“Everyone is responsible for their individual piece of the pie and being the best they can be at their piece,” Hekkert said, “so that hopefully within the whole pie we have all pieces covered.”

—Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is a JofA editorial director.