{"id":89819,"date":"2021-10-17t15:20:45","date_gmt":"2021-10-17t19:20:45","guid":{"rendered":"\/\/www.g005e.com\/?p=89819"},"modified":"2024-08-14t11:25:54","modified_gmt":"2024-08-14t15:25:54","slug":"competing-for-talent-in-a-private-equity-world","status":"publish","type":"post","link":"\/\/www.g005e.com\/2021\/10\/17\/competing-for-talent-in-a-private-equity-world\/","title":{"rendered":"competing for talent in a private-equity world"},"content":{"rendered":"
why your firm’s compensation and ownership model just became obsolete. by anthony zecca talent has been one of \u2013 if not the \u2013 biggest bottlenecks blocking growth at accounting firms.<\/p>\n more on private equity for cpa firms:\u00a0<\/strong>analysis: private equity the new source of growth capital for cpa firms?<\/a>\u00a0 |\u00a0\u00a0analysis: how outside capital will remake cpa firms<\/a>\u00a0 |\u00a0\u00a0exclusive:\u00a0 ceo charly weinstein explains the private equity deal<\/a>\u00a0\u00a0 |\u00a0 \u00a0flash briefing webinar: a \u201ccall to arms\u201d after eisner private equity deal<\/a>\u00a0 \u00a0|\u00a0\u00a0eisneramper gets private equity backing<\/a>\u00a0|<\/p><\/blockquote>\n in my strategy work with accounting firms, i hear over and over how firms can\u2019t 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.<\/p>\n now with private-equity investments in accounting firms, this fight for talent will only get more intense.<\/p>\n 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?<\/p>\n 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\u2019s 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\u2019s 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.<\/p>\n 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.<\/p>\n 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\u2019t believe that is the major issue for accounting firm leadership to address.<\/p>\n 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.<\/p>\n 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 \u201cequity and value\u201d 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.<\/p>\n some of the key points that need to be thoughtfully examined are:<\/p>\n each of the above questions \u2013 and those questions that have not even surfaced yet \u2013 must be examined and answers developed. it can\u2019t be done reactively. it can\u2019t be done by waiting until another firm does something and copy that. it can\u2019t 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\u2019t think it can be done without an experienced consultant who understands accounting firms to challenge and get everyone out of their comfort zone.<\/p>\n your path forward can take three directions:<\/p>\n <\/a>
\n<\/strong><\/p>\n
\nleading from the edge<\/a><\/i><\/p>\n\n
\n
\nwhy your firm’s compensation and ownership model just became obsolete.<\/strong>
\nby anthony zecca
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