Hope is not a strategy when it comes to growing new partners

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There are several things I find curious about small and midsized CPA firms.

Why do so few firms share information about average partner compensation, or the high/low range of partner compensation, with their staff members, or at a minimum, potential partner candidates? Why don’t more firms share with their staff what it takes to become a non-equity partner and eventually an equity partner? Why do few firms make the necessary investment to develop the next generation of partners?

When it comes to the silence small and midsized CPA firms have around partner compensation, it appears firms believe that, if they share this information, the staff in turn will negotiate for more money for themselves. I guess that’s human nature, but not sufficient reason to closely guard against compensation disclosure and keep staff in the dark. Personally, I like staff who want to earn more money. As I see it, the more money they earn, the more they produce and that production results in more profits for the partners. All good!

Further, I believe that CPA firm partner compensation, while it doesn’t compare with the huge amounts earned in the tech or investment banking industries, is not anything to sneeze at or be embarrassed about. Partners earn handsome sums of money and live comfortable lives with their families. They should be proud of it as they work hard enough for it. Disclosing partner compensation statistics to staff is a great carrot for those who aspire to be future partners.

While firms recognized long ago that marketing, identifying and selling to new clients are important activities to sustain growth and therefore spend lots of time and money in these areas, many firms don’t make similar investments in attracting and retaining talent, particularly when it comes to “growing” new partners.

It’s very healthy for firms to develop a roadmap as to what it takes to get promoted from senior manager, principal or director to non-equity partner and then from non-equity partner to equity partner. Firms can reap considerable benefits if they develop a partner candidate development academy.

Not many staff want to become partners at small and midsized CPA firms. It’s their perception that work and life are not balanced to their liking. Having said that, usually there are a good number of staff at small and midsized CPA firms who do, in fact, have an interest in becoming partners. But again, large numbers of firms are not very helpful in “educating” staff as to what it takes to get the promotion.

On the other hand, there are successful firms who do provide a promotion roadmap for staff. In it they clearly indicate that the path to move to non-equity partner typically is considered after functioning two or perhaps three years as a senior manager, principal or director. It is made very clear that the key question addressed when a firm is considering a professional for promotion to non-equity partner is: Does the non-equity partner candidate contribute to perpetuating and growing the business of the firm, maintaining and enhancing technical excellence and driving client and staff retention?

In addition to this key question, other criteria and guidelines are designed to determine if the candidate has demonstrated a track record of performance, and if someone qualifies for promotion to non-equity partner. They include detailed questions regarding:

1. Client relationships and client service excellence;

2. Technical capabilities and distinctions;

3. Personal attributes;

4. Staff development;

5. Business development (a combination of new business and cross selling);

6. Office leadership and firm management;

7. Communications; and

8. Administrative responsibilities.

When it comes time to considering someone for promotion to equity partner, the more successful firms make it clear they have financial and economic guidelines (including standards for revenue, profits and billable hours) that recognize practices generate different results. Therefore, depending on the candidate’s area of expertise, they might require different standards. As a result, firms customize financial guidelines for a candidate’s applicable role and what the candidate needs to do to meet them.

The promotion roadmap also indicates that moving from non-equity partner to equity partner is a consideration after functioning two or perhaps three years as a non-equity partner. The key question when a firm is considering a professional for promotion to equity partner is: Has the equity partner candidate significantly contributed to perpetuating and growing the firm’s business, maintaining and enhancing technical excellence, and driving client and staff retention? Further, has this contribution been demonstrated by a track record of steady and increasingly improved performance in the eight areas referred to above.

To develop the next generation of partners, I encourage firms to launch a partner candidate development academy. It provides an opportunity for partner candidates and senior management to get to know each other better and creates glue for the organization. Perhaps most important, it provides tools to the partner candidates that enable them to maximize their strengths and minimize their weaknesses.

I also encourage firms to be more forthcoming when it comes to partner compensation disclosures and to invest more time and money in the promotion roadmap. Staff very much appreciate the openness and the directional path. The information helps them take a deep dive into themselves and decide whether partnership is what they want and if they’re willing and able to make the sacrifices necessary to get there.

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Partnerships Partner compensation Practice structure Career advancement Dom Esposito