what best serves the firm?
by kristen rampe
in our work with cpa firms on partner compensation, we have asked countless partners what they think about various performance criteria and whether or not they should factor into a partner’s allocation of income. some examples of the performance criteria include firm management, business development, client service and billable hours. another criterion we ask about is seniority or tenure.
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some partners respond to our questionnaire indicating that seniority or tenure should be a factor in income allocation. many partners believe it has no place. so, who’s right?
as we work through these projects on partner compensation, it usually comes to light that the people who believe seniority and tenure should be assigned a value in allocating income are correlating a high number of years of service with a high level of performance. thankfully for our profession, this correlation is typically true.
that said, have you ever worked with a partner who, at some point, showed declining performance as their years of service got longer? we’ve seen it too.
when considering how you allocate the profits of your firm, it’s important to recognize that performance and years of service don’t always land on a pretty little line that increases at a 45-degree angle.
here are some examples of the wide range of comments we get when partners describe why they gave a particular score to seniority as a factor in partner compensation:
in favor of rewarding seniority
“the partners that have been with the firm for a long time have spent many years getting the firm to where it is now. they deserve to be acknowledged for that and compensated for it.”
“some weight for experience which a good partner possesses, i believe can be valuable to a firm; i would add that longevity and type of experience in the profession is more important than at just our firm.”
in favor of more performance-based rewards
“performance ultimately is the true measure of what comp should be. in measuring the subjective contributions sometimes tenure brings wisdom that benefits the firm (not always). this would need to be decided on a case-by-case basis.”
“longevity does not necessarily benefit the firm. long-term partners should not be rewarded for or allowed to ‘retire in place.’”
“if a more junior partner is contributing more in all areas in one year, than a more senior partner, who really deserves more, in that specific year? i would argue the junior partner.”
the good news is, you can have your cake and eat it too on this one. recognizing and rewarding partner performance that continues to grow and develop over time is the right thing to do. in almost all cases, an equity owner with 25 years of experience contributes far more to their accounting firm in any given year than a partner with two years of experience. but to make sure you don’t get caught in the occasion performance starts to decline, set up your system to reward that strong performance in year 25 more so than just making it to year 25.
we have seen cases where, for example, a fourth-year partner is a true all-star, and in fact outperforming many five- to 15-plus-year partners who appear to be more along for the ride than truly driving the development of the firm. who should get a higher allocation of income? we too would argue the fourth-year partner.
if you’re considering a payout simply for how long carl’s been sitting in that leather executive chair; think back to the classic line from “office space” (i’m still waiting for a remake of this film): “is this good for the company?”
one response to “rewarding partners for seniority: pros and cons”
frank stitely
as the oldest of 3 partners, i can’t imagine seniority being a good basis for compensation. it will always end badly. get them something nice with the company logo and mention them at company meetings. compensation should be based on performance not chair warming.