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plus five things the other partners should expect from their leader.

by marc rosenberg
the rosenberg practice management library

baby boomer partners are rapidly approaching retirement age, creating a huge demographic shift. one result of this is a dramatic increase in new managing partners at firms.

many firms are skipping a generation and turning the reins over to “younger” partners. firms are also asking their new managing partners to divest themselves of a significant part of their client base to enable them to focus more on managing the firm.

how should the new managing partner be compensated?

1. consider a fixed term for his/her first term. this provides time to decide if it’s a good fit. we see these terms range from two to five years because it takes that long to fully adjust to the job, tackle major initiatives and develop a style that is compatible with the partner group.
2. giving up clients is a major risk for the new managing partner. he/she should receive two types of compensation guarantees:

• • while managing partner, the guarantee should be no less than the percentage of total partner income earned in the year prior to assuming the managing partner job and
  • if he/she steps down, the guarantee should be no less than the person’s percentage of total partner income during the last year as managing partner, for three to four years.

3. the managing partner must be given sufficient authority to do his/her job, and not have to go to the board every time a decision needs to be made. the managing partner must have a major influence on partner compensation and have authority to hold partners accountable, with termination being an ultimate, though not preferred, option.
4. before too long, the managing partner should not earn less than average income per equity partner.
5. a factor (though never a 100 percent factor) in setting the managing partner’s compensation should be growth in the top and bottom lines. see below for more factors.

a short list of what partners should expect from their managing partner:

1. manage and coach partner performance and behavior.
2. drive profitability.
3. ensure a high level of practice development and marketing activity by firm personnel.
4. make the firm a great place to work where people continually advance because of excellence in training and mentoring.
5. be a champion for the firm’s culture and core values, dealing swiftly with transgressions.

production isn’t all that matters.

by marc rosenberg
the rosenberg practice management library

increasingly, cpa firms are adopting the compensation committee system for allocating partner income. firms are finding that systems such as formulas, pay based on ownership percentage or pay-equal no longer work.

more: voting on ownership basis? three better methods | what partners do and don’t deserve | tell potentials what partnership takes | fifteen big questions for your next strategy session | five steps to transition to partnership | disturb the present to improve the future
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if there is one overarching cause for this significant trend, it’s that firms are understanding that their partners need to be something more than production machines. in addition to bringing in business, managing a client base and working billable hours (all of which continue to be important values in a compensation committee), partners need to excel in intangible areas such as helping staff grow and develop, developing specialized expertise and teamwork. the compensation committee is one of the best systems available to cpa firms to allocate income based on this diverse array of performance criteria.
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