use compensation to shape partner behavior

do you have the right mix of partners?

by domenick j. esposito
8 steps to great

visualize your partner group fitting into a bell curve.

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in quartile #1, you have the stallions – the very high performers who produce outstanding contributions to the firm year in and year out. these equity partners want to win and know how to do it.

there isn’t much that you need to do to move the needle with them. they consistently contribute to the partnership with exceptional performances. their contributions might be in maintaining excellent client relationships, consistent new business development in excess of $250,000 a year, mentoring younger staff or firm administration. these are the partners who get the large year-end bonuses and generally are the firm’s highest earners.

in quartile #2, you have the solid performers – while these partners may not be stallions, per se, they are reliable team players who do their best and are sincere in furthering the success of the firm. more than likely these partners are a combination of seasoned equity partners and a number of up-and-coming nonequity partners. they are worth every penny that they get in compensation.

in quartile #3, you have the journeymen – every firm has them. these partners give you a solid performance and do what they can to further the firm but generally act, look and feel like employees and not owners of the business. they usually aren’t the lead partners on client relationships because they are not effective and only occasionally bring in some new business.

in quartile #4, you have partners who are always on the bubble because they are poor performers for a whole myriad of different reasons. some no longer have gas in the tanks. some never had gas in their tanks and probably should not have been promoted to partner in the first place. nevertheless, they are partners. some have been with the firm for a very long time and it is difficult to deliver the message that they are probably better off seeking different employment. waiting to deliver tough love later rather than sooner usually isn’t a good thing and more than likely makes a bad situation even worse.

“people don’t do what you expect but what you inspect.” – lou gerstner

every cpa firm needs more than 50 percent of its partners in quartiles #1 and #2. if your firm doesn’t, there is work that needs to be done before you can realize the firm’s full potential. this is particularly true if your firm has more than 50 percent of the partner group in quartiles #3 and #4. if your firm has the wrong mix of partners, i strongly suggest that you start changing that mix sooner rather than later.

while you’re changing your partner mix, there is a tool that you can utilize to get greater results than those you might be currently experiencing. that tool is your partner compensation plan.

as i consult with small and mid-sized cpa firms across the u.s., i am surprised to find that many firms don’t have a partner compensation plan that rewards desired behaviors that can move the firm’s bottom line. if your partner compensation plan:

rewards an eat what you kill environment, you aren’t building a firm that can remain independent in the long run.
sprinkles the bonus pool to quartile #4 partners, you aren’t paying your top performers their market value.
is heavily weighted to partner billable hours as opposed to total billable hours managed or supervised, you aren’t giving your younger staff the opportunity to get on-the-job training that will help develop them.
rewards a partner who thinks and acts as if clients are his or her clients as opposed to the firm’s clients, you aren’t building a firm with a lot of fabric among the partner group.
doesn’t promote the use of your firm’s specialists to service clients who require unique services such as international tax or estate planning, you aren’t looking out for the best interest of the clients. sooner or later these clients will discover that they have outgrown your firm and will begin to look for a new service provider.
results in an open compensation system with full disclosure to all partners, you are asking for unnecessary trouble within your partner ranks.
doesn’t include the ability to have upward partner evaluations, you are inviting potential staff abuses.
doesn’t require timely staff evaluations, you are creating an environment for unnecessary staff turnover.
tolerates poor client billing and collecting habits, you are telling compliant partners that you aren’t serious about the firm’s stated policies regarding timely work in progress billings and timely client receipts.
rewards cowboys or partners who don’t abide by firm protocols, you are risking losing some very high performers who don’t respect leadership who do not walk the talk.

there is no perfect partner compensation plan and, even if there were, not all of your partners would modify their behaviors that will move the firm’s needle and maximize their compensation. if your partner compensation plan doesn’t address these and other critical success factors, you probably aren’t properly rewarding the necessary behaviors that will enable you to compete in the future.

a partner compensation plan is one of your most effective management tools and yet many firms don’t maximize its usefulness. when is the last time you took a critical look at your firm’s compensation plan? how often do you say to yourself that your partners aren’t thinking and acting like owners of the business? it might be time to ask your best partners for their recommendations on how to improve your compensation design and what needs to be done to make it become an integral part of your arsenal to improve the bottom line.

posted on july 13, 2017

dom esposito

about the author

domenick j. esposito was the ceo of grant thornton, vice-chair of bdo, and national growth director at cohnreznick.

he is the author of "8 steps to great: the eight essential strategies driving success at the world's largest cpa firms. and how to apply the lessons at firms of all sizes," published by 卡塔尔世界杯常规比赛时间.

a life in public accounting

in 2016, esposito, then a former ceo of bdo, moved from a 46-year career in public accounting into the next phase of his professional life – consulting to cpa firms, launching a boutique advisory firm, esposito ceo2ceo, that provides advice to ceos, managing partners and other senior partners of cpa firms focused on the mid-market throughout the u.s.

with the launch, esposito authored “8 steps to great," a guide for ceos, managing partners, and other senior partners on how to move their firm to the next level.

cohnreznick national growth director

esposito was one of the most qualified individuals in the country to advise cpa firms on growth and profitability. through 2015, he was national practice & growth director and an executive board member of cohnreznick, llp, a mid-market sustainable brand and the tenth-largest cpa firm in the united states. he oversaw cohnreznick’s go-to-market industry specialization and consulting and advisory service lines. he was also intimately involved in the firm’s mergers and acquisitions and strategic and tactical activities for its public company and capital markets initiatives. dom joined the predecessor firm of j.h. cohn in 2002 as the chief operating officer and executive board member.

dom was also an independent director of ethan allen interiors inc. for several years (through 2014), dom was a member of the nasdaq listing and qualifications committee to the organization’s board of directors. he formerly served as the leader of the new york state society of cpas committee for large and medium-sized firms practice management. he also was an adjunct accounting professor at c.w. post/long island university.

bdo and grant thornton

through october 2002, dom was vice chairman at bdo, a mid-market sustainable brand and the seventh-largest international accounting and consulting firm in the u.s., with almost 50 offices and 3,400 employees. during his brief time with bdo, he was responsible for the alliance distribution network (at the time consisting of over 80 cpa firms, 10 law firms, and 25 consulting firms). he was also responsible for attracting and servicing a number of clients.

from 1979 through 2001, dom was with grant thornton, another mid-market sustainable brand and the sixth-largest international accounting and consulting firm in the u.s., with over 50 offices and 4,500 employees. he joined grant as an audit manager, became a partner in 1981, led the long island office from 1984 to 1986, became assistant managing partner of the new york office in 1986, and from 1988 to 1999, led the new york office. in 1999, esposito became a regional managing partner and for two years, through 2001, was the firm’s chief executive officer.

cpa, partner, mba, leader, influencer, media celebrity

between 1996 and 1998, and while he was ceo, esposito was on the partner board and was also on the board of grant thornton international – the worldwide umbrella organization. in these capacities, he developed strong experience in strategic thinking and execution, international relationships, corporate governance, partnership matters, branding, expense control, client relationships, and new business development.

as ceo, he took grant thornton to record earnings, consummated the largest line-of-business sale in the firm’s history, developed a major joint venture with axa financial, and made the largest practice acquisition in the firm’s history. from 1969 to 1979, esposito was with price waterhouse (now pwc), servicing ibm when he was promoted to manager in 1976.

dom was a cpa, has been quoted in national and local media, and has appeared on radio and cable tv.

esposito also testified before the securities and exchange commission.

he received his m.b.a. from st. john’s university and his b.s. from ferris state university. accountingtoday, one of the leading trade journals for the accounting profession, named esposito one of the most influential people in the profession for two consecutive years.

he passed away in 2021 at the age of 74.

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