prune your firm: ‘rightsize’ managers and partners

benchmarks for measuring your firm, plus 5 ways that firms get upside down.

by domenick j. esposito
8 steps to great

is rightsizing partners and managers that difficult? the simple answer is no!

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while i acknowledge that it is not easy to rightsize your small or midsized cpa firm, i believe that many firm leaders can do (must do) a much better job when it comes to outplacing unproductive partners and managers.

so, let’s dissect the problem and provide some guidance for improvement.

because so many managing partners struggle with outplacing unproductive partners and managers, it probably would be helpful if we start with some benchmarks that will help take a hard look at productivity.

“success is nothing more than a few simple disciplines, practiced every day.”

– jim rohn

firms doing at least $20 million in annual revenues are hitting these benchmarks today:

fees per equity partner: $2,100,000
earnings per equity partner: $635,000
staff to equity partner ratio: 8
average equity partner billable hours: 1,100
average manager billable hours: 1,600

the numbers are different for smaller firms. for firms doing under $10 million, annual fees per equity partner are about $1,300,000, earnings per equity partner are just under $400,000, staff to equity ratios are about 5, and average equity partner and manager billable hours are 1,200 and 1,800, respectively.

so, if your firm isn’t consistently hitting the numbers in your appropriate “bracket,” does that mean you aren’t rightsized?

more than likely, yes.

there is no question that the most profitable cpa firms (i.e., those with the highest average equity partner earnings) have figured out that leverage and a well-managed partner/staff pyramid is one of the key ingredients for success. many firms, however, struggle with just the opposite – an upside down partner/staff pyramid where there are too many partners and managers, too few staff and too little use of technology.

cpa firms didn’t get to an upside down pyramid overnight. many wind up with top-heavy firms because of a number of factors including:

generational issues, including the baby boomer bubble (many partners between 55 and 65 years of age), xers and millennials (who don’t aspire to partnership and prefer multiple employment moves throughout their careers).
a lack of sufficient talent and consistent, effective recruiting and staff development processes. many firms don’t have a process to see quality recruits and generally let senior journeymen (professionals who are doing an adequate, but not an exceptional job, and have little, if any, prospects for advancement) stay on the payroll too long.
promoting non-partner-track people or marginal staff to higher positions because “we’re preserving staff continuity” and “it’s best for the client.” this typically occurs because it is the path of least resistance or if the firm lacks aggressive up-and-comers.
performance management and compensation plans for partners and managers that focus too heavily on chargeable time and billing runs. partners gravitate to manager work and managers gravitate to senior work.
“it’s just easier to do it myself and besides i’m a lot more efficient at it.” how many times have we heard these words from partners and managers?

ouch! so, what do you do if you have an upside down partner/staff pyramid?

first of all, you need some time to work out of this terrible spiral. you didn’t get there overnight, and you won’t fix it overnight, either. my advice is to begin the “fix” by prioritizing and dealing with the following issues:

if you don’t have a staff recruiting and development plan for your firm, create one. it should include the commitment to always be hiring, whether you need people at the moment or not. this allows you to continuously bring in new blood. but they must meet the firm’s expectations for performance, growth and advancement over a reasonable period of time. if they don’t, they will have to leave the firm. manage the turnover and the cream will rise to the top.
tell your people the truth. you have managers who are never going to be partners. you have non-equity partners who are never going to become equity partners. you have equity partners who have retired but still come to the office to collect a paycheck. tell them it is probably time to move on. more than likely, they already know it, but inertia may have set in and they lack the motivation and energy to look for a new position or to truly retire. if you have attempted to counsel unproductive partners and managers over the years but nothing significant has improved, it is time to outplace those professionals.
make sure that your best and brightest take note that you are taking action with regard to the inverted pyramid. there are people in your firm today who are looking up at the layer(s) of people above them thinking, “there is no way that i can ever make it through or around them in an acceptable time frame.” you can tell your “all stars” that they are special and that you will promote them until you are blue in the face. but talk is cheap and if they can’t see the path, they will leave.
demographics in firms today indicate that fewer people than ever want to be equity partners. that’s because many are looking for a better work/life balance.

treat your “rising stars” differently; pay them differently. don’t get sucked into making everyone at a particular level look the same. they are not.

don’t clog up your ladder with a large percentage of career people while you watch the “rising stars” leave. perhaps this can be viewed as an up-or-out policy. so be it! you have a business to run.
every once in a while, initiate a “push-down” of work at each level in your firm. people cling to the familiar and comfortable. it also justifies their existence. so, shake it up and ask everyone to push down 200 or so hours. you’ll free up your high-level people who are capable of creating new work, get more of the work done at the right level and give the younger staff some challenging work.
if you have a partner performance management and compensation plan that is heavily weighted toward billable time and a billing run, change it to a plan that is directly linked to your firm’s strategy.
promote a work environment that embraces non-traditional staff and partners. technology and remote connectivity have created opportunities to find great people. use these non-traditional methods to identify and employ such people.
grow! it will be very difficult to change the upside down partner/staff pyramid without a solid growth strategy of 6 percent (organic) to 8 percent (with mergers/acquisitions) for your firm.

in conclusion

the undesirable but fairly common outcomes of an upside down pyramid are summarized below:

you have too few younger staff. you have a tough time keeping the ones you have busy.
truly talented staff, your “all stars,” leave because they don’t see any opportunity to advance in your firm.
managers and staff do the same work with the same clients year after year.
you have a costly labor load and you have a difficult time collecting an acceptable billing rate for work that they have outgrown.
partners are full with compliance work and are not cultivating the high-value consulting work. even worse, they aren’t in the marketplace developing new originations.
and, worst of all, you don’t have the talent at the right levels to succeed as future partners who will help perpetuate the firm.

posted on november 16, 2018

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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