Every CPA firm is impacted by the competition to retain and attract good people and to keep their partners motivated. Compensation is not just relevant to the people up for review, it is relevant to all of the team—especially the owners because part of their compensation is going to be pegged to the performance of the full team.
Whether you are in the staff review cycle or thinking through methods for owner compensation, here are four ways to design compensation to be more meaningful:
Define the core performance. No different than buying a retail product, the price is for a certain deliverable or package. It is the same with base compensation. Be clear as to what are the specific basic expectations. In other words, what is being paid for with the base? It should include production, hours, rates and administrative functions. A job description is often helpful to go along with the core compensation definition.
Bonuses. Going beyond the requirement must be the driver for the bonus. The more clarity to the computation of the bonus and the behavior that is required to earn the bonus the better. The bonus can be computed as a percentage of the base compensation, a percentage of the managed book or a percentage of a target achievement. The easier it is for the person to understand the formula for the computation and the level of effort to achieve the given goal, the more likely it will be that the person will put in the effort to make it happen. Then and only then will there be a win-win result.
Teamwork. Stimulating teamwork and rewarding team achievement is a valuable part of a compensation system. So, if the firm hits certain benchmarks, a pro rata bonus should be triggered. Much like for owners, there should be a dividend for a portion of the performance based on the relative ownership interests due to the fact that the team is dependent on each other.
Creativity. Traditional metrics still have a place in determining compensation and justifying the amount, but non-traditional markers should be addressed, as well. Improving delegation, accelerating turnaround time, peer-to-peer assessment and client satisfaction are important non-traditional factors to be melded into a compensation plan.
The more thought and creativity you put into the mechanics of determining compensation, the greater your ROI will be.