Accounting firms need to rethink the roles and expectations of their partners, according to industry consultant Allan Koltin – and changes to traditional partner compensation models can help.
Speaking in a session on partner comp at the American Institute of CPAs’ 2016 Practitioners’ Symposium and Tech+ Conference, held here this week, Koltin explained that modern firms need a great deal more from their partners than they used to.
“Thirty years ago, there were only three questions,” he said. “How big is your book of business, how many hours do you bill, and how much business did you bring in?”
Now, however, partners must be measured and held accountable in a number of different areas, including how much they contribute to recruiting, retention and mentoring, how many new service offerings they create, whether they’re active in succession planning (and transitioning their own clients, at the appropriate stage of their careers), how much capital they’re contributed, and much more.
“You need partners to be willing to give up charge hours and take risks,” he said, and that will require a great deal more flexibility in compensation plans.
“Firms need to compensate partners differently,” he said. “Rainmakers shouldn’t need to have billable hours, while skilled technical partners should have high billable hours.”
He noted that for the average partner, there was plenty of room for them to give up less-productive billable hours to focus on more valuable activities. “Billable hours go in thirds,” he said. “One third is you doing brain surgery; another third is brainless but helps to maintain your relationship with the client. The last third of billable hours is robbing the cradle.”
Partners would be better off delegating the work done in that last third, and spending that time on more productive activities – though they shouldn’t necessarily be deciding what those productive activities are on their own. “Just because you want to do it or like to do it, doesn’t mean it’s the best use of your time,” Koltin said. “Listen to your partners.”
Changing the model
Listening to your partners only makes sense if they have a unified strategy built around a common vision and shared goals. Assuming that a firm has established those, then they can create individual partner goals, and use performance-based partner compensation to hold everyone accountable for their individual goals.
“You need alignment and self-knowledge before you can get to compensation,” Koltin said.
Assuming a firm has that, Koltin recommends avoiding formulas: “Whenever you have formulas on quantitative things, it tends to crowd out qualitative things,” he said.
Instead, firms should aim to increase their bonus pool, and give greater discretion to the decision-maker to distribute that money to incentivize the behaviors and activities the firm needs from its partners.
“Nothing is more unequal than the equal treatment of unequal partners,” he said, though he did acknowledge that, “The No. 1 most divisive issue in accounting firms is relative partner income -- and there’s no other issue that’s close.”
On the positive side, Koltin noted that the profession has some bragging to do: “We don’t talk as much as we should about how much you can make in public accounting,” he said. “The numbers now are staggering.”
