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PARTNER COMPENSATION FOR A NEW MILLENIUM PRESENTED BY: MARC ROSENBERG, CPA

PARTNER COMPENSATION FOR A NEW MILLENIUM PRESENTED BY: MARC ROSENBERG, CPA. The Rosenberg Associates. Marc Rosenberg, CPA President Consultant, author and speaker to the CPA profession Based in Chicago Over 700 client firms from coast to coast

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PARTNER COMPENSATION FOR A NEW MILLENIUM PRESENTED BY: MARC ROSENBERG, CPA

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  1. PARTNER COMPENSATION FOR A NEW MILLENIUM PRESENTED BY: MARC ROSENBERG, CPA

  2. The Rosenberg Associates Marc Rosenberg, CPA President Consultant, author and speaker to the CPA profession Based in Chicago Over 700 client firms from coast to coast Top 100 Most Influential Person in Accounting Profession – Accounting Today - - 7 consecutive years 22 years consulting to firms The Rosenberg Associates

  3. Rosenberg is active with CPA firms: • Facilitate retreats • Partner compensation & retirement • Succession planning • Mergers • Strategic planning • Practice management reviews • Partner relations and conflict • Upward evaluation surveys The Rosenberg Associates

  4. The Rosenberg Associates • The Rosenberg MAP Survey – Accounting Today calls it “generally accepted as the barometer for CPA firm practice management.” • The Management Catalyst – quarterly newsletter sent to 3,000 CPA firms nationwide, free of charge The Rosenberg Associates

  5. Where Marc goes in his free time The Rosenberg Associates

  6. Watch for MVP Slides MVP

  7. Final Groundrule I take questions during the presentation

  8. Best PracticesFrom Rosenberg • Performance - based • Practice development plays a meaningful role • Integrate with strategic planning, goal setting and performance evaluations The Rosenberg Associates

  9. Best Practices 4. Teamwork rules: Partners do what the firm needs them to do 5. Multi - tier: • Return on capital • Base • Incentive bonus The Rosenberg Associates

  10. Best Practices 6. MP has more impact than other partners 7. Reward intangibles 8. Flexible The Rosenberg Associates

  11. 9. Leadership vs. Management vs. Administration* The Rosenberg Associates * Originally presented by Bob Bunting, modified by Rosenberg

  12. Compensation Systems • Equal Not performance-based The Rosenberg Associates

  13. Are All Partners Created Equal? Highest paid partners out-earned lowest paid by 2.3 to 1 ratio (Firms over $2M) . The Rosenberg Associates From 2009 Rosenberg MAP Survey

  14. Compensation Systems • Equal • Ownership percentage Not performance-based The Rosenberg Associates

  15. Compensation Systems:Performance-Based 3. Formulas billings x 38.743% ÷ √billable hours x A/R² - (cash receipts on Thursdays) ÷ (founding partner’s birthday) + billing rate x (1.732 x realization rate) + √IPP ≠ 50.9 ∏∑∑ book of business - ∫ gross fees ÷ 0.00 The Rosenberg Associates

  16. Compensation Systems 4. Paper and pencil 5. Cumulative points 6. Profit center approach The Rosenberg Associates

  17. Compensation Systems 7. MP decision 8. Compensation committee 9. All partners meet to decide 10. Combination of some of the above The Rosenberg Associates

  18. MVP Recap of Ptr Comp Systems The Rosenberg Associates

  19. 6 Things To Be Taken Into Account in Allocating Income MVP Finder Minder Grinder Capital invested Management (not administration) Intangibles including goal setting, living core values, fulfilling your role The Rosenberg Associates

  20. MVP Partner Compensation Systems • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com 2010 Rosenberg MAP Survey

  21. Partner Compensation SystemsChanges in Past 4 years Per 2010 Rosenberg MAP Survey

  22. Formula Complications Inherited wealth The Rosenberg Associates

  23. Formula Complications Hoarding The Rosenberg Associates

  24. Formula Complications Recognition of technical specialties: • Tax • A&A quality control The Rosenberg Associates

  25. Formula Complications Which criterion is most important? Who is to say? The Rosenberg Associates

  26. Formula Complications How to value management The Rosenberg Associates

  27. Formula Complications How to recognize intangible contributions How long we get credit for origination The Rosenberg Associates

  28. Formula Complications Bring a partner along on a sales pitch The Rosenberg Associates

  29. Formula Complications • Partners with lower billing rates or who head up non - profit area • Client on one partner’s book when another really manages the client • “I” vs “WE” The Rosenberg Associates

  30. 3 Formulas That Can WorkReasonably Well • 20/50 • Finder/Minder/Grinder • Formulas for both metrics and intangibles Carve-outs for interest, mgmt & bonus The Rosenberg Associates

  31. #1 - 20/50 Method Defined: 20% x client base 50% x billable dollars (hours x rate x realization) The Rosenberg Associates * 2009 Rosenberg MAP Survey

  32. #2 - Finder Minder Grinder • Finder – who brings it in • Minder – manages the client relationship AND the engagement • Grinder – doing billable work The challenge is coming up with the weighting: • 1/3 – 1/3 – 1/3 • 35-45-20 • Other? The Rosenberg Associates

  33. OVERALL SYSTEM INTANGIBLES BALLOT Leadership 5 4 3 2 1 Mentoring staff 5 4 3 2 1 Pract development 5 4 3 2 1 Sharing clients 5 4 3 2 1 Teamwork 5 4 3 2 1 Good citizenship 5 4 3 2 1 Expertise & techn skills 5 4 3 2 1 Etc. 5 4 3 2 1 Etc. 5 4 3 2 1 Total #3 - Another formula system I’ve seen Interest on capital ?% Production measures ?% ?% Mgmt stipends ?% Intangibles-paper-pencil ?% Incentive bonus ?% Mgmt’s discretion 100% Total The Rosenberg Associates

  34. Recent Significant TrendsIn Partner Compensation Techniques • More comp committees; fewer formulas • Link with strategic planning • Intangibles • Teamwork • Less emphasis on book of business The Rosenberg Associates

  35. The declining importance of “book of business”4 Reasons 1. Stresses teamwork and the one-firm concept 2. Intangible factors must be considered also The Rosenberg Associates

  36. The declining importance of “book of business” 3. Partners freely transferring clients to others 4. Institutionalizing clients; creating “multiple touch points” The Rosenberg Associates

  37. MVP Recent Significant TrendsIn Partner Compensation Techniques • More comp committees; fewer formulas • Link with strategic planning • Intangibles • Teamwork • Less emphasis on book of business • Less emphasis on billable hours • Generous to new partners • Closed vs. open (though most still open) The Rosenberg Associates

  38. Comp Committee:Why Firms Use It • Formulas have big flaws • Balances rewards between production and intangibles • MP doesn’t want sole responsibility • Partners won’t give sole power to MP The Rosenberg Associates

  39. Comp Committee:Keys to Success • IF THE PEOPLE BEING JUDGED DON’T TRUST THE JUDGES, THE SYSTEM WON’T WORK. PERIOD. The Rosenberg Associates

  40. Comp Committee:Keys to Success 2. RULES GOVERNING THE DECISIONS MUST BE CONSISTENT AND WELL UNDERSTOOD; PARTNERS MUST UNDERSTAND WHAT BEHAVIORS AND RESULTS TRANSLATE THE MOST TO BIGGER REWARDS. THINGS MUST BE CLEAR The Rosenberg Associates

  41. Comp Committee:Keys to Success 3. A SINCERE EFFORT MUST BE MADE BY THE JUDGES TO COLLECT ALL PERTINENT INFORMATION AND STUDY IT. DON’T ALLOCATE COMPENSATION BASED ON REPUTATION, INTUITION, PERCEPTION, ETC. The Rosenberg Associates

  42. Comp Committee:Keys to Success 4. JUDGMENTS THAT ARE EXPLAINED AND COMMUNICATED ARE MORE READILY ACCEPTED THAN THOSE THAT ARE NOT. MVP The Rosenberg Associates

  43. Make-Up of Committee • Small • MP is permanent member • Voted or appointed • All members must be credible • Not everyone gets a turn The Rosenberg Associates

  44. Data Reviewed by Committee • Partner evaluations • Self-evaluations • Upward evaluation by the staff • Achievement of goals • Production statistics • Input from MP, PICs, dept. heads • Paper and pencil (non-binding)

  45. Comp Committee:Important Decisions • Determining the # of CC members • How long is a CC member’s term? • Should the CC be the same as or different from the MC/EC? • Who evaluates partners: CC or MC/EC? • Performance criteria: • What will be looked at? • Will criteria be weighted or looked at subjectively? The Rosenberg Associates

  46. Leadership People skills and development Practice development Client service Client transition Traditional production measures Teamwork Good citizenship Performance Criteria MVP The Top 50 firms largely stay away from weighting one vs. the other. The Rosenberg Associates

  47. Comp Committee Operation:Important Decisions 6. How will CC communicate with each partner? 7. How the CC actually allocates the $$$: • MP recommendations + group “tweaking” • CC does a paper and pencil exercise, then tweaks • Some sort of ranking/performance grid The Rosenberg Associates

  48. INCENTIVE BONUS Separate criteria from base Base is a “salary” FINAL DISTRIBUTION Same or similar criteria as the base Base is really a draw Important Comp Committee Decisions8. Incentive bonus or Final Year-End Distribution? The Rosenberg Associates

  49. Incentive Bonus:Major Factors • What did partner do to enable the firm to have a “good year?” • Exceeding production goals • Achievingqualitative goals • Intangibles • Hitting home runs • Partner performance evaluations The Rosenberg Associates

  50. Examples of Intangibles • Mentoring and development of staff • Earning respect and credibility of personnel • A good delegator • A team player • Overall leadership • Adheres to firm policies and rules

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