[IMGCAP(1)]Many bosses hold back their subordinates without realizing they hold themselves back even more.
I see this a lot. For myriad reasons bosses would restrict raises and bonuses for those immediately under them. Examples are a CEO in a not-for-profit kept raises to a minimum for the CFO; a bookkeeper gives low raises to her main assistant; and a manager at an accounting firm suggests low raises for his direct reports. What these people do not realize is that they create reduced salary caps for themselves.
Let’s take the CEO. In the board’s discussion of the CEO’s compensation, an informal ratio is applied for how much his package needs to be in relation to the second highest paid person—the CFO. For instance, if the CFO earns $120K, a 150 percent ratio would yield a $180K amount for the CEO. Based on the size of the organization and relative responsibilities, I believe the CFO should earn around $175K and the CEO about $250K.
The CEO gives me his thoughts when he recommends raises for the CFO, whom he seems to think is earning more than he deserves. The board shares their thoughts with me about the ratio they feel they cannot support more than a 150 percent ratio for the CEO. As the independent accountant for the organization, I am at the table for both discussions as well as having the CFO share his irritation over the small raises with me.
Some years ago the head bookkeeper was told she could hire an assistant. She started out by quibbling with the suggested salary when the recruiter sent her resume, and then ended up paying a little less than the low range that was provided. When her raise time came, she was turned down for the raise she requested since it would make her salary too much more than her assistant. A similar situation arises with the manager at the accounting firm.
I am not suggesting giving very large raises so you could get an ever larger raise; but keeping people’s salaries on the low side, because you can, is not good business for the organization, the employee and yourself.
The value of understanding this is what could make one accountant/consultant better than another and for them to be able to provide the right guidance to the client. But regardless of our advice, it is hard to overcome people’s small minds.
Edward Mendlowitz, CPA, is partner emeritus at WithumSmith+Brown, PC, CPAs. He is the author of 24 books, including “How to Review Tax Returns,” co-written with Andrew D. Mendlowitz published by www.CPATrendlines.com, and “Managing Your Tax Season, Third Edition” published by the AICPA. Ed also writes a twice-a-week blog addressing issues that clients have at www.partners-network.com. Art of Accounting is a continuing series where Ed shares autobiographical experiences with tips that he hopes can be adopted by his colleagues. Ed welcomes practice management questions and can be reached at (732) 964-9329 or firstname.lastname@example.org.