real-life examples. about 29% are owners.
by kristen rampe
rosenberg associates
more and more firms are exploring the benefits of adding a chief operating officer (coo) to their leadership ranks. the coo role often encompasses strategic cpa firm leadership, holding partners accountable, making decisions in line with the firm’s strategy and overseeing all administrative functions.
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this position can significantly reduce the time client service partners spend attending to these duties. and often the coo can do them better, as they aren’t distracted by the next fire drill from a high-profile accounting client. their only client is the firm.
the coo role can take on a variety of flavors, depending on firm size, need and the level of experience and skills of person they have placed in the role:
- the coo who is a high-level employee, charged with running the administrative side of the business, taking important but not “cpa-required” functions off partners’ to-do lists. their work is directed by partners.
- the coo who is a partner-level strategic thinker and business leader, and also takes direction from the managing partner/ceo. they bring ideas to the table, obtain buy-in and oversee implementation. this type often exists at larger firms where the managing partner/ceo also has a primarily strategic/leadership role, and little, if any, chargeable client work.
- the coo who is substantially a managing partner/ceo or co-managing partner, if you compare their responsibilities and effectiveness to other similar-sized organizations. they’re the best in the firm at holding other partners accountable and driving change. this type often occurs at small to midsized firms, where the managing partner title might be retained for a client-service partner, but many aspects of leading the business are held by this variety of coo.
the challenge for traditional accounting firms, in which partners are the top producers and top earners, is how to fit a coo into your compensation system. whether or not your coo is an employee or an owner, they’re a c-level player and command a requisite income. we conducted a quick poll of our readers to learn more about current practices with coos at cpa firms.
coo: employee or owner?
based on our poll, which included 65 responses indicating their firm currently has a coo, 71 percent of respondents reported their coo is an employee and 29 percent reported their coo is an owner. in the open-ended comments, several firms indicated that their coo was also a client service partner, or had been in the past.
what are coos earning?
compensation levels for coos reported in our poll were varied. even within firms of similar revenue bands, coo comp ranged from under $100,000 to over $275,000. large firms, not surprisingly, concentrated on the higher end of this scale.
can an employee (non-owner) coo out-earn an equity partner?
one of our questions was whether, philosophically, the coo could out-earn an equity partner. analyzing only the data from respondents who indicated their coo was not an owner, 21 percent said their coo could earn more than an equity owner.
there is certainly more to explore here. is the ability to earn a high total compensation package limited on principle? or on requested job duties not being as extensive as they could be, given either the firm’s needs or the individual’s capabilities? firms lucky enough to have a true strategic partner in their coo may benefit from questioning whether this limit makes sense at their firm. of course, many may choose to make such a talented person an owner, thereby “allowing” them to earn more – or at least allowing access to owner-level compensation.
coo compensation commentary
respondents added information to our data that shares diverse industry practices.
“we have a special bonus plan for our c-suite leaders, so if they were exceptional and the firm had a very strong year financially, it’s possible they could make more than the lowest compensated equity partners but still below the average equity partner compensation.”
“i would not think that a coo would normally earn more than an equity partner. i’m not saying that it is impossible; i’m just not sure it would happen at our firm.”
“coo is not an owner, so will not have share of profits but has incentive around efficiency and profit goals.”
“a balanced scorecard is established by strategic planning meeting. results and accomplishments are evaluated and rewarded by the compensation committee.”
“(the coo is paid) in conjunction with the owner bonus pool and is typically the highest paid under the ceo.”
“with present roles and responsibilities, value is just not there for higher pay.”
coo compensation structures
we followed up with some respondents on how coo income is structured at their firms. here are some example practices:
- a fixed salary, with potential for a 10-25 percent-plus bonus depending on performance. subjectively determined by the executive committee.
- coo is a client service partner with a full book of business, and a part of our partner scorecard. they are given “leadership” points at a fixed-point value and receive points in all scorecard categories.
- a portion of coo compensation is performance-based, which is related to the completion of the goals established in conjunction with our executive committee. goals are largely around execution of strategic initiatives.
what’s the right structure for your firm?
the level of contribution of a coo role at your cpa firm should align with their compensation. their role should be tied to firm needs and their capabilities. to keep a strong c-suite player, you’ll need to offer corresponding incentives. this kind of investment should have a strong roi. top-notch player = top-notch comp.
coos who make notable contributions to the firm are commanding higher pay – and those who may be functioning more like a firm administrator or who make valuable, but not as outstanding, contributions see more moderate pay. your goals for your coo may grow over time, starting off as someone “just to take care of things” (all the things) and growing into a more strategic role as your cpa firm’s needs grow.
from our experience, firms of all sizes that are investing in a coo role have found it has a positive roi. at larger firms, this role is imperative to keep the organization running properly. at midsized firms, the coo can add value as a partner-level leader as well, if existing leaders are willing to find the right person and hand over responsibilities (spoiler alert: and be willing to be held accountable by the coo).