While partner value and compensation continue to be topics that attract considerable attention at firm summits and practice management conferences, fear of the unknown often trumps any motivation for change or improvement.The Balanced Scorecard - which connects compensation to a firm's objectives - has emerged within many firms during the past few years, but some still resist any new approach. There must be a compelling reason to change, which usually results in winners and losers.
There are several factors that typically determine the value of a partner. They include the partner's responsibilities, results, management skills, client development skills, technical expertise and team focus.
The age, size and culture of a firm play a distinct role in its partner compensation plan. The old saying, "Be careful what you measure," certainly applies, and partners are masters at focusing on their own compensation. Some mistakenly believe that a compensation plan covers a career, rather than a year or a few years, but it is irresponsible to believe that initiatives won't change, even if strategic objectives remain constant for a time.
So what characterizes a good partner compensation plan, and how much value should firms place on partners in today's competitive environment? After carefully examining many successful firms, I have identified seven distinguishing characteristics of a healthy partner compensation plan:
* 1. The foundation: a strategic plan that is current and easy to communicate.
* 2. Time invested to think and plan (working on the firm, rather than in the firm).
* 3. Objectivity: an outside perspective.
* 4. Clarity: a documented compensation plan.
* 5. Communication of that plan up front.
* 6. Consideration of each partner's unique abilities.
* 7. Accountability and coaching: frequent feedback and communication.
Leadership, management, discipline and accountability undergird all of these. Unfortunately, accountability and discipline are missing in many firms. Partners are typically evaluated on charge hours, book of business, and realization. Older compensation systems tend to focus only on financial results. Newer systems add emphasis to staff development (training/learning), client satisfaction, and adherence to firm standards, policies and procedures. Notice that seniority is not mentioned. Firms should not promote entitlement, but rather accountability to strategic objectives.
With this said, the value chain starts at the low end with partners who have technical skills, but not management and client development capabilities. It extends to a high for those partners who are focused on firm management (managing other partners), human resources and client development. In the middle are partners who serve clients, manage non-partner personnel and have limited client development skills or responsibilities.
Partners must be willing and able to manage more than just productivity as the firm expands. This is often a hurdle, because some partners resist any changes in their roles or compensation plans.
In fact, one of the biggest challenges with mergers and expansion is for partners to think about the firm as a large business. To aid in this effort, we recommend "The 10 Times Growth Model" exercise. Partners should consider what the firm would require if it were 10 times larger than it is today. With some time, they will come up with answers like the following:
* 1. A professional management team;
* 2. Quality personnel;
* 3. Increased revenue per full-time equivalent;
* 4. A firm managed like a business;
* 5. Training;
* 6. Increased capital;
* 7. Documented standards, policies and procedures;
* 8. Knowledge management systems;
* 9. Specializations; and,
* 10. Integrated systems.
Next, each partner should consider what they themselves would need to do if the firm were 10 times larger than it is now. Their answers will generally focus on the following:
* 1. Become a better manager of people;
* 2. Adhere to standards, policies and procedures;
* 3. Get training and update their skills;
* 4. Spend more time on personnel and client development;
* 5. Form more alliances;
* 6. Delegate;
* 7. Spend less time doing client work;
* 8. Plan more time off;
* 9. Maintain their own confidence, and that of their subordinates; and,
* 10. Upgrade their client base.
Now the most important question arises: Consider which one of these items should be removed if the firm is only growing at 10 percent to 15 percent annually. The answer is none.
Partners should think like the firm is already 10 times larger than it is today, and make decisions based upon the future, rather than the past. The firm's growth and profitability must be planned, and each partner should be held accountable. There will be disagreement, but that is no reason to ignore the important issues. A firm's leadership and management must be responsible about its future.
If you are serious about implementing accountability and want to change your compensation system, begin by documenting a well-defined strategic plan. Then, as Jim Collins writes in his best-selling book, Good to Great, the task of getting the wrong people off the bus may be easier than getting the right people in the right seats.
Pain, reward and education are the catalysts for any kind of change. Most firms require all three, and partners respond most to the pain associated with compensation change, as well as the reward for doing the right things. Leadership requires tough decisions, and partner compensation is an issue that requires not only change, but also critical thinking and a documented plan.
Gary Boomer, CPA, is the president of Boomer Consulting, in Manhattan, Kan.
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