competing for talent in a private-equity world

why your firm’s compensation and ownership model just became obsolete.

talent has been one of – if not the – biggest bottlenecks blocking growth at accounting firms.

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in my strategy work with accounting firms, i hear over and over how firms can’t attract talent, how talented individuals are being recruited away to other firms or other industries with significant salary increases. i hear managing partners telling me that their marketing teams and partners are afraid to bring in new clients since the staff they have are already stretched beyond what is reasonable to expect.

now with private-equity investments in accounting firms, this fight for talent will only get more intense.

think about this for a moment: you are the managing partner or practice lead for a good-sized accounting firm and one of your critical needs is to recruit a talented international tax partner. you find a great candidate who likes your firm, and you offer her equity partnership and a base guaranteed compensation of $400,000. she is 40 years old. she is also being pursued by a firm that has a pe investment and they offer her compensation of $400,000 plus $100,000 worth of shares and/or options that she will vest in in 5 years plus the ability to amass more shares/options based on her performance. all other things being equal, what decision do you think she will make?

the age-old accounting firm partnership model and career track will be tested as never before in terms of how it will impact the firm’s ability to attract talent, particularly at the higher levels. think about the above example. our talented international tax partner can look forward to earning a great living (both scenarios). with the accounting firm, she has to wait probably 20 years before she is 100% vested in the firm’s deferred compensation package for retiring partners. that deferred compensation is purely based on her income and not directly connected to the value of the firm at the time she retires. with the pe invested firm, she will earn the same and perhaps more annual compensation, but she shares in the value appreciation immediately and can exit and monetize that value in 5 years versus 20 years.

accounting firms and their leaders can sit back and rationalize that my above example will be the exception and that traditional accounting firms have a culture that over the long term is better than working within a culture that is pe-dominated. can that argument be sold to a talented senior-level individual who you are trying to recruit? in my view, in most cases, it will not. the appeal of the pe model with a direct sharing in the value appreciation of the firm and the ability to monetize that value in years rather than decades will be a strong pull that many will be unable or unwilling to resist.

so, what are accounting firms to do? how can accounting firms compete with the lure of a firm that is pe invested? there are two components to examine. first, i would suggest that for many highly talented and compensated individuals, although annual compensation is very important, other issues such as culture, autonomy, the people, the work environment, etc. become increasingly important. accounting firms may offer a better overall work experience than one might have with a pe-invested firm. accounting firms can also become more competitive in compensation to make the gap more manageable. however, i don’t believe that is the major issue for accounting firm leadership to address.

the one issue that accounting firms must address to be able to effectively compete for the best talent at the senior level is value appreciation and monetization. there is no way that even the best managing partner can sell the concept to a talented senior person that it is better to wait 20 years in my above example to monetize their value in the partnership than to accept a position in a pe invested firm where not only can they monetize in 5 years but monetize based on the value of the firm and not the level of their compensation in 25 years.

accounting firms need to re-think and re-model their compensation and ownership model to address the above challenge. they need to think about alternate structures such as esops, phantom stock, stock appreciation rights and other alternate “equity and value” models to provide a comparable monetization opportunity. this is a seismic shift in thinking that has many tenacles to be thought through before any decision is made as to the alternate equity structure that will work.

some of the key points that need to be thoughtfully examined are:

does the firm’s strategic plan (assuming you have one) need to change to align with the future alternate ownership structure and all that involves?
how does any change in the ownership and compensation model affect all current partners?
how do goals need to be re-set to maximize the impact of a change in the alternate equity structure?
how do the firm leaders need to change to lead in such a significantly different model?
what are the potential tax implications?
what is the impact, if any, on retired or soon-to-be-retired partners?
what regulatory issues need to be addressed, if any, to implement changes in ownership?

each of the above questions – and those questions that have not even surfaced yet – must be examined and answers developed. it can’t be done reactively. it can’t be done by waiting until another firm does something and copy that. it can’t be done holding onto many of the historical beliefs that we have lived with for so long. it can’t be done with a few meetings. i don’t think it can be done without an experienced consultant who understands accounting firms to challenge and get everyone out of their comfort zone.

your path forward can take three directions:

do nothing and hope i am wrong,
tweak around the edges through a reactive process, or
recognize the seismic potential impact and develop a clear strategic plan to move the firm out of its current model to a model that will allow the firm to compete for and win the battle for talent.

posted on october 17, 2021

anthony zecca

about the author

anthony zecca is a veteran cpa and management consultant who focuses on growth strategies and leadership.

he is the author of
leading from the edge – the strategic growth handbook with bonus toolkit
published by 卡塔尔世界杯常规比赛时间.

buy now | learn more

zecca’s understanding of leadership was honed both by his career as a partner in a cpa firm as well as his work as a consultant with hundreds of leaders across numerous industries.

“leading from the edge” reflects zecca’s belief in what makes a successful leader and challenges every leader, in any capacity, to have the courage to step out of what he calls “center leadership” to become an impactful edge leader who can move their organization to the level of a standout, high-performance firm.

zecca’s career began at j. h. cohn & company – a small $5 million dollar firm in new jersey where his first exposure to leadership was gained. zecca earned his cpa credentials early in his career and was promoted to partner in 12 years.

his successful career as an audit partner provided him with the opportunity to work with a number of large clients of the firm.

zecca’s interest in how businesses worked, what made good ones good and bad ones bad, resulted in a career move from audit to management consulting. as a partner in the small consulting team at j. h. cohn, he led a number of consulting projects for small to middle-market companies.

he used his work with ceos of these companies as a “leadership laboratory” where he took the time to probe and observe so many different leaders and began to develop a deep understanding of what made great leaders great and their impact on how their companies performed. zecca served on the management committee of the firm and was part of the leadership team at j. h. cohn as the firm grew from a small firm to a $250-milion dollar firm and one of the top 20 firms among the top 100 firms.

he became the managing partner of the consulting division of the firm in 2001 when consulting revenue was less than $2 million with a team of five.

when he retired from the firm at the end of 2015, the consulting division had revenue of about $70 million with 24 partners and close to 300 staff. half of that growth was from the firm merger with reznick in 2013.

over his career, he consulted for hundreds of organizations, interacting with leaders in family companies as well as publicly traded and large not-for-profit organizations.

it’s through his long career working with leaders and being active in the leadership of his firm that his concepts regarding leadership were developed and shared in this second book. zecca was co-author of “the performance power grid,” first published, by wiley, in 2000, focusing on “business intelligence,” making it one of the first on the topic.

anthony has presented at conferences and client company retreats numerous times on strategy, growth, and leadership. he has written numerous articles on these subjects and is recognized for his excellent presentation and facilitation skill.

he has been involved in various charitable organizations including being one of the founding members of the medhen orphan relief effort which is an organization that supplies financial support to an orphanage in ethiopia.

in addition, he has been on various boards including his hometown board of education where he was elected president for 8 of the 12 years he served. most recently his consulting work has been with a number of accounting firms as well as other professional service firms providing high-value advice on strategy, leadership, and growth.

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