Every firm we consult with has a different compensation plan. Some work well and some don’t. It makes no difference if you are a two-partner firm or a 200-partner firm, compensation plans are always a critical part of your firm’s success.
Compensation and incentives impact and drive behaviors, sometimes positively and sometimes negatively. Compensation can impact a variety of areas, from client service, team member development, business development, and ultimately your firm’s profitability and future.
Are you satisfied with the current compensation plan? Do you feel that it is driving the appropriate behaviors?
When we ask this question, many times professionals aren’t sure how to respond. We tend to hear many professionals reply that they are “satisfied” or “somewhat satisfied,” but few seem to be really thrilled with their plan. Do you know which parts of your plan work well and which parts need to be changed or eliminated?
He said: If a firm hasn’t looked at its compensation plan in the last 10 years, it may be behind the times.
Modern compensation plans are very different compared to old ones. They have gone beyond the old “finder, minder and grinder” formula and many of the other systems that accountants have used for 30 or 40 years. The new plans take into consideration both of these elements, as well as others that promote teamwork, development and collaboration.
She said: I have seen a lot of firms finding success using tried-and-true compensation plans. For example, I am thinking of a small-to-midsized accounting firm that uses the “Pen and Paper” method. Another client uses a strict formula approach. These are plans that have been around for a long time and seem to be working in those environments.
He said: Well, you can’t argue with success. While it is true these accounting firms are successful, it may not be due to their compensation plan. Smaller firms usually have less of a problem because there is no place for an underperforming partner to hide. And if the firm is not managed by a benign dictator, the other partners can keep each other in check.
Another thing to consider is that partners fear having to give something up. A lot of plans don’t change because those in control of the firm don’t want to make any changes. This is short-sighted and reflects an attitude of scarcity, rather than abundance.
She said: There is a prevalent attitude of scarcity and fear when it comes to compensation discussions. It is unfortunate.
He said: Well, let’s start with defining success as it relates to compensation. Is a firm successful because the partners make a lot of money, or is a firm successful because it provides exceptional service to its clients and provides opportunities for its people to grow professionally?
She said: Is it both? For me, a successful firm is one that is growing; has sustainability; effectively adapts with the times; where partners and team members contribute at a high level and are rewarded in a way that recognizes this; and the firm encourages them to do the right things — which include serving clients well.
He said: I couldn’t agree more. That’s why a compensation system needs to reward the behaviors that ensure sustainability, change and long-term profitability. It’s really a balancing act since a firm needs to be profitable today in order to survive tomorrow. What’s important is that a firm doesn’t focus just on short-term profitability and nothing else.
She said: Unfortunately, many compensation systems do not promote the activities that would drive long-term sustainable growth. This leaves high performers scratching their heads and updating their resumes. It also ensures complacency in the firm.
So, how does firm leadership get all of their partners to focus on the right things?
I don’t think that many partners just want to reallocate dollars. This is the fear — the money will get shuffled around and I might get paid a lot less than someone else. That is de-motivating and it doesn’t make a lot of sense.
He said: You are right! Just reallocating dollars among the partners is not what we are talking about.
The purpose of a good compensation system is that the firm pays performers more than non-performers.
Also, compensation is not a zero-sum game. If the firm makes more, everyone has the potential to make more. The success of one partner does not mean that another partner suffers.
She said: Exactly. The only way that a partner loses income is if they don’t perform against their agreed-upon goals. Everyone has a say in the goals that support firm growth and long-term sustainability. If the firm is growing and gaining strength, everyone wins short- and long-term.
He said: Professionals need to be aware of what is expected of them early on, and these expectations need to be set and communicated at the beginning of the year for everyone. There should never be any surprises when it comes to compensation at the end of the year.
She said: Goals need to be communicated early and often, but also the messaging on where the firm is going, and how the partners can participate and fully support it is critical. You can’t just tell a partner to do something different — you have to show them how it will be better for them and for the firm. People must commit to participating in that vision. As partners see the results that their individual and collaborative efforts are having on the firm, it should create even more motivation to support the right kinds of behavior and activities.
They said: To wrap up, no matter how old or new your firm’s compensation system is, make sure it drives performance and fully rewards those who contribute the most; otherwise, you may be leaving money on the table in the form of opportunities — growth, client service, team development, etc.
You may also be inviting high performers to explore other opportunities if they are not seeing the fruits of their labor. Many professionals don’t look at compensation system changes as a positive because it feels threatening. The reality is, if the compensation system is strong, everyone wins.
August Aquila is a well-known consultant, retreat facilitator and author. Reach him at (952) 930-1295 or
