How Accounting Firm Compensation Committees Assess Partner Performance
Firms use several methods to allocate income among the partners. At firms with 8 or more partners the compensation committee system is by far the most common. With this approach a small number of partners are elected to allocate income using their best judgment, formed after a thorough review and analysis of performance data. This system is the best at aligning the firm’s strategy, vision and goals with how partners are evaluated and compensated
The beauty of the CC system is that it gives the committee members the freedom to assess each partner’s performance on a wide range of areas. Firms that use the CC system are making a statement: They value traditional production measures but they also value intangibles such as firm management, staff mentoring, loyalty and teamwork.
Here are the most common performance criteria:
Firms look at the “Big 3” production measures: Finding, minding and grinding – bringing in business, the size of the client base managed and billable hours. Smaller firms tend to place all or most of the comp system emphasis on production, to the exclusion of other important, so-called intangibles.
Regardless of whether your firm selects a CC or not, the value of leadership positions such as the MP, PICs and serving on the Board must be properly recognized and rewarded. Leadership demonstrated by line client service partners (those without official management roles) is also important.
Firms these days are quick to say they value their staff as much as clients. But many firms fail to walk the talk. Each partner should be evaluated on the extent that they helped staff, by name, to learn and grow. Also, upward evaluations of the partners by the staff is an excellent tool to use.
Providing clients with world class service, helping them grow and retaining them – nothing can be more important. The MP of a large firm once told me that a few of these performance criteria have a higher standard than others, saying that “if you flunk, you’re out” (of the firm). Client service was one of them.
One of the best ways to achieve partner accountability and align the firm’s vision with partner performance is goal setting. Three important goal setting areas are (1) production, (2) fulfilling one’s role in the firm (i.e., MP, PIC) and (3) achieving non-production goals that are part of the firm’s overall strategic plan (i.e., launching a new service line).
Examples: Timely adherence to the firm’s policies and procedures, living and breathing the firm’s core values, being a good partner, communicating well with partners and staff. Read more on CPA Practice Advisor.