{"id":51570,"date":"2017-03-23t05:00:47","date_gmt":"2017-03-23t09:00:47","guid":{"rendered":"https:\/\/48e130086c.nxcli.net\/?p=51570"},"modified":"2017-03-24t08:33:25","modified_gmt":"2017-03-24t12:33:25","slug":"struggles-hitting-market-compensation-fairly","status":"publish","type":"post","link":"\/\/www.g005e.com\/2017\/03\/23\/struggles-hitting-market-compensation-fairly\/","title":{"rendered":"the struggles of hitting market compensation … fairly"},"content":{"rendered":"
<\/a>avoid the temptation to “sprinkle” among “buckets.” by domenick j. esposito<\/i> for the most part, managing partners at a large number of the best-run top 100 firms below the giant four do an excellent job in splitting up their compensation pies.<\/p>\n more on strategic planning: <\/b>ineffective partners and how to address them<\/a> | develop home-grown future leaders<\/a> | how to capitalize on the trusted business advisor opportunity<\/a> | leadership must be persistent and consistent<\/a> | using a high-performance business framework<\/a> | what a client service plan can add<\/a> | 36 consulting services you might be overlooking<\/a> | how to drive consistent partner behavior<\/a> | cpa firm partner performance: different activities, different metrics<\/a> their partner compensation system rewards performance and, at the same time, nurtures rising stars with lots of potential. goal setting and evaluation tools are used to develop an understanding about each partner\u2019s<\/p>\n these tools enable the managing partners to classify their partners into certain buckets that often look like these:<\/p>\n when the time comes to dividing the compensation pie, these tools and partner classifications enable managing partners at many of the best small and mid-sized cpa firms to place a lot of emphasis on paying for performance\u00a0<\/span>(particularly partners in\u00a0<\/span>bucket #1) and, at the same time, nurturing the rising stars with lots of potential (bucket #2)<\/em>. we have found, however, that even at the best-run firms, it is not unusual for managing partners to \u201csprinkle\u201d some compensation from <\/span><\/em>partners in\u00a0<\/span>buckets #1 and #2 to<\/em>\u00a0<\/span>partners in\u00a0<\/span>buckets #3, #4, #5 and #6.<\/p>\n \u201ccompensation experts say that any system, if it is to stand up over time, must pass two tests: internal equity (whatever the rules are they must be applied in a consistent manner) and external equity (do compensation rewards reflect the economic realities in the open market).\u201d<\/p>\n \u2013 david maister<\/p><\/blockquote>\n why does \u201csprinkling,\u201d even at the best-run firms, occur?<\/p>\n we believe the answer to this question lies in the benevolent views of the managing partners who often look beyond the numbers and allocate partner compensation, at least in part, with the hope of keeping harmony among the partners. we also have come across some managing partners who have deep-seated beliefs that their partners are earning more money than they ever dreamed of; therefore, \u201csprinkling\u201d some dollars around won\u2019t even be noticed. others believe that many of their partners aren\u2019t motivated by additional compensation so there is no harm in doing some spreading or spraying. finally, others just \u201csprinkle\u201d some portion of partner compensation simply to avoid confrontation with certain partners.<\/p>\n and while some small amount of \u201csprinkling\u201d is certainly understandable in good years (i.e., \u201cthere was plenty of money to go around so there wasn\u2019t any harm in \u201csprinkling\u201d some dollars to keep everyone happy. after all, it does take a village.\u201d), we believe \u201csprinkling\u201d should be kept to an absolute minimum. and when there are tough years \u2013 and there always are tough years\u00a0\u2013 and there isn\u2019t enough money to go around to adequately compensate the franchise players and the next generation of all-stars, we not only would strongly discourage \u201csprinkling\u201d at all costs, we would encourage managing partners to redistribute some compensation away from <\/span><\/em>partners in\u00a0<\/span>buckets #4,\u00a0<\/span>#5 and #6 (and perhaps bucket #3)\u00a0<\/span>and shift it over to<\/em> partners in\u00a0<\/span>buckets #1 and #2. after all, the franchise players are making things happen today and the next generation of partners will be making things happen in the future. without them, the firm would not perpetuate.<\/p>\n this isn\u2019t only directed to the best-run small and mid-sized cpa firms. it is also directed to those firms that are not clicking at full throttle; struggling to grow and currently not achieving average equity partner compensation (market currently is about $625,000) at the top 100 firms below the giant four.<\/p>\n there is considerable equity partner compensation compression at the underperforming cpa firms. this is happening, in part, because these firms don\u2019t have the right mix of partners \u2013 not enough who fall into\u00a0<\/span>buckets #1, #2 and #3\u00a0<\/span>and too many partners who are classified in\u00a0<\/span>buckets #4, #5 and #6. changing the partner group obviously is a much bigger challenge that needs to be dealt with.<\/p>\n if your firm is struggling to achieve its full potential (that average equity partner compensation of about $625,000), we strongly encourage you to take a hard look at the low-hanging fruit \u2013 your partner compensation system.<\/p><\/blockquote>\n at all costs, we recommend that you don\u2019t \u201csprinkle\u201d dollars away from your franchise payers and high potential all-stars. in fact, if anything, we encourage you to redistribute dollars away from<\/em> partners falling into\u00a0<\/span>buckets #4, #5 and #6 to <\/span><\/em>partners falling into\u00a0<\/span>buckets #1 and #2, and perhaps,\u00a0<\/span>bucket #3.<\/p>\n if some of your low-performing partners (particularly those partners falling into\u00a0<\/span>bucket #4 and bucket #5) don\u2019t understand that it is absolutely necessary for the firm to compensate the franchise players and high potentials as close to market as possible, ask them to leave \u2013 and hope that they do. they probably shouldn\u2019t be with you anyway.<\/p>\n at the end of the day, the partner compensation pie is a zero-sum game. small and mid-sized cpa firms that are not achieving average market compensation of about $625,000 have the huge task of changing their mix of partners to include more franchise players and partners with high potential. that should be their long-term goal. it takes years to fix but history has shown us that it certainly can be done.<\/p>\n in the meantime, the short-term task is to get as much compensation into the partners who are creating the cash flow today and those who will create the cash flow in the future \u2013 even if that means you have to take dollars away from other partners. the last thing any managing partner wants to do is to lose their highest performing partners over compensation but we have seen it happen over and over again.<\/p>\n warning \u2013 don\u2019t sprinkle! other than making you feel good today, there is no upside!<\/p>\n","protected":false},"excerpt":{"rendered":"
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