Partner compensation systems should be about much more than just divvying up the money, says Mark Masson of Axiom Consulting Partners — they should also be about achieving the firm's strategic goals.
Transcriptions below:
Dan Hood: (
Welcome to on the air with Accounting Today. I'm editor in chief Dan Hood — you know, while everyone at accounting firms thinks about partner compensation, they don't often talk about it, or at least they don't often talk about it in useful, open ways that lead to better results.
Here to change all that, and to talk about partner comp in a useful way, is Mark Masson. He's the head of professional services advisory firm Axiom Consulting Partners, and he's an expert in partner performance and compensation. Mark, thanks for joining us.
Mark Masson: (
Thanks for having me. It's a great topic to be talking about right about now. And I'm excited about the conversation.
Dan Hood: (
Yeah, it is. It is on a lot of people's minds, I think in part because a lot of things about compensation for everybody, the Great Resignation has everybody thinking about all these issues and partner comp is, uh, a perennial issue for a lot of firms. Let me ask you: Generally speaking, do you have a sense of how well accounting firms handle partner compensation? You know, are they thinking about it in the right way? Are they approaching it in the right way?
Mark Masson: (
Well, they're certainly thinking about it. I mean, to be really direct, there's a lot of effort and calories spent thinking about it, trying to get it right. So there's no shortage of effort, but you know, most leadership teams, most teams and comp committees, etc., and major firms really express a really difficult time with getting it to function in the way that it should. And also that it's very arduous every year — it's no easier than the year before, perhaps sometimes more difficult. And this spans firm sizes, right? It's not really picky, this feeling about it, not really doing much, except being a hard process to try to make it fair at the end of the year, whether you're a $50 million firm or a $2 billion firm, you don't feel like you're seeing the lift and performance on the firm side or individual side, the practices side, for all the effort that you're putting in.
Mark Masson: (
So there's a lot of focus on it, but not a lot of results that that leadership wants to see for that input. Uh, you know, there's a lot of reasons for that. I mean, it's not an easy thing to, to really get across and to, to manage, especially as a scale grows, partner performance is about co that are complex. They're high order, they're multidimensional, all of these things make it very difficult to compare what one partner might be doing that is equal to another partner when it looks very different. Right, but you know, you asked if they're thinking about it in the right way. I'm not sure that all are thinking about out the broader aspect of partner compensation, partly because they think about it in terms of partner compensation. That sounds kind of athema right. But you know, the fundamental job of, of a compensation system is to, yes, fairly reward people for the contributions they're making.
Mark Masson: (
Right. But more than that, it should be focusing the mind and drive performance on the contributions that are truly gonna achieve the strategy and long term goals of the firm. Right. And if it's not doing that, then there's something broken in the system and it may not be about the process you use to, to divvy up the profits at the end of the year. Right. It's not necessarily about the formula or the waiting or any of that, which, which really shouldn't be the whole thing. There's, there's many pieces to a partner compensation, um, system. And I think people get it, get it, it a little wrong in certain areas, or maybe miss some points on it. One is to really can connected to the strategy itself. Right. Right. So, you know, we think often about the most salient, most quantifiable metrics that are maybe the most easiest to, to compare origination credit and hours build and utilization and things of that nature, which are all part of the game, but there's a much more broader set of things.
Mark Masson: (
Often though, they're delinked the things that people measure are delinked from, the strategy itself and the things that are gonna move it ahead. So having a clear link between strategy and what you're asking people to do, and what you're paying them for is, is really critical. Um, it, you know, I think there's also a little bit of, um, you know, the expectations and metrics, not being on those contributions of behaviors that, uh, really are gonna make a difference, right? I mean, you can maybe even have them linked to, to strategy, but if they're, you know, very narrow and, and sort of more quantifiable than qual qualitative, uh, quantitative and qualitative, or, more focused on revenue to people, etc, it maybe doesn't get there. But, um, I really think the biggest mistake or kind of miss that, that often we see is back to this idea of partner compensation versus partner performance model, the way we talk about it at Axiom.
Mark Masson: (
And that's really thinking more broadly, there's the splitting up of the profits, but really if you want to execute against a strategy, you gotta have the right roles in place. Is everybody being asked to do the same thing and is that gonna get the best of everybody? Um, if you've got multiple roles, if you've got some specialization in the roles that, that you've got among the partners, and especially if you're getting beyond 50, 75, this becomes very salient for, for firm that size and beyond. Are you asking for the contributions in a way that is clear? it has a, a, a set of contributions. People can carry around in their head, not 42 things, but rather seven or 10 things at most, right. And, are you really expressing the metrics in ways that people trust you have the data for, and you can, can really drive performance on the basis of, right. Those three things are places where you win the game. Another place where you win the game is, is the process of not only evaluating performance, but being able to tell people why they were, why they made the income, that they did, how they can make more income the next year and what contributions those are linked to. So there's a much broader set of things to think about when you think part performance model versus compensation.
Dan Hood: (
Gotcha. And I like, I wanna dive more deeply into how firms can make that connection or make, or broaden out that conversation and, and what that would look like when you start to say, how do you connect compensation to those strategic goals and sort of things. But before we do that, I mean, we've mentioned that this partner compensation has been an issue or perennial issue for accounting firms, right. It's always gonna be, people are always gonna care about it, but it's always been sort of a problem. I don't think many firms have, have, taken the approach you're describing or have, even if they've been thinking about it, they haven't necessarily successfully, implemented it. Are you seeing, are you seeing any movement towards that among firms or are there any other broad trends and partner compensation that you're seeing for good or ill, you know, good ones or bad ones?
Mark Masson: (
Yeah. There, there are quite a few actually. Uh, and they, they really center on, on several things. You know, the, the trends and partner compensation focus on collaboration, which is an off use word and not really well defined oftentimes, specialization development and actually equity. Right. So there are, there are several words that I, I would use to describe some of the more interesting trends in partner compensation, right. And I think the development piece just to take them one at a time, you know, development piece is, is really a response to what you alluded to earlier, the great resignation, the supply demand challenges that firms are are experiencing. I think there's absolutely no question that, that, that supply is much lower than the demand right now. And that really goes all the way up to the partner level, right? Not just partners moving in and out, but when you think about the partner pipeline and how they get work done, um, this is really a focus on development to make sure that they get people, the work experience they're looking for creating a new and a different environment that attracts and retains staff at all levels, but also builds and sustains that partner pipeline for future, which can be a, a very, a big air gap for the firm.
Mark Masson: (
Um, maybe even just a year or two from now that that could be a culmination of what's happening here with this quote, great resignation if they're not attending to it. So building in, expectations and contributions on people development among partners, and even next level, senior managers, managing directors that put the, uh, the accountability on them for driving that development much more explicitly, uh, you know, think about specialization as well. Most, firms have over, over the course of history last few decades, this whole system, as you say, is been designed many, many years ago, right. And probably the biggest kind of, bifurcation has been maybe two tier partnerships, right? Income and equity partnerships. many got went back even though to, to one, one tier partnerships. What they haven't done is, is recognize what we talked about earlier. That idea that highest and best use for every partner in a firm's that has 75 partners, 300 partner or 700 partners is not the same.
Mark Masson: (
You don't have to ask for the same contributions at the same level of every partner to be successful. In fact, doing that differently can really have outsized positive effects on the firm's growth and sustainability recognizing, where some can, can be more higher contribution, more specialized in some ways. That's another trend that people are actually have sort of known about for a while. Uh, talking about personas is another way we talk about that. What's a persona of a partner, but have been sort of hesitant to take that step. Uh, things are now at a point where we need to tackle this. We need to at least take some steps to innovate, even if we can't take the radical change. Um, and collaboration is, is also an interesting one, Dan, it, it is a really, uh, ephemeral kind of word. It's one that is very, very difficult for people to put their finger on.
Mark Masson: (
What does it look like? What does it amount to, and more particularly, how do we measure it, right? And this is one though that I think a lot of firms are realizing the way you get to the holy grail of advisory work and trusted advisor types of relationships, these, these buzzwords that we like to use, but it is certainly the area of growth that is, is overtaking firms, 20 30, 40 plus percent to firm's revenue is coming in the consulting advisory area. And that's the highest growth area. The way you do that is you develop solutions that are multi-dimensional, they cross practices. They, they cross different parts of your firm. And that requires, more of the how of delivering than just the whats. So injecting some of that into the performance model is, really important. You can see that in terms of how do I sell.
Mark Masson: (
It's not just how much do I sell it's who do I sell with and where have I shared revenue credit and where have I brought a client in and developed them into a multi-practice client and institutional client. So those are, these are areas that, that folks are tackling and, um, maybe not uniquely, but certainly, very presence of, of late is the equity piece, right? This idea that, uh, diversity is on everyone's mind creating a more diverse firm is one thing, creating a more diverse partnership is even harder creating a more diverse leadership. All the seems intractable sometimes cuz as you go up the scale that that diversity starts to wan quite considerably and thinking about the equity and compensation, even as it's unconscious, is their bias in the system, such that the outcomes are, are different. Uh, many are coming to us asking us to, is there a way we can test for that statistically?
Mark Masson: (
And, uh, what's really interesting is it's not really always that there's bias in the outcomes it's that you find some of that upstream in the way people have shared credit have worked together, um, how some of those relationships are formed and going to market together. And we can help, uh, you know, kind of set the firms up for success in the future by creating the, the mechanisms and the culture around, uh, that that sort of going to market together in a different way, in a more equitable way that leads to those diversity, uh, desires that you have for the firm.
Dan Hood: (
I think we're gonna talk a lot of those things. We're gonna talk about more about how, uh, firms can, can put all those things together with a platform that, uh, creates accountability within the compensation system. But, uh, before we do that, I'm just curious cuz one of the things we're getting, uh, we're in the midst of collecting our top 100 firms survey and we're seeing, uh, firms always talk about talent being one of their big issues, recruiting or intention. This is a first time where we've seen huge numbers of firms reporting, explicitly reporting salary increases that they're raising salaries for all their employees because, uh, because they're worried about recruiting and retention particularly this year. And I was curious if you're seeing, uh, in the, in the, in the partner comp area, any kind of specific reactions, not, not necessarily in terms of increasing, necessarily, but just any changes that are, that are specifically driven by the current environment or is that, is partner comp sort of insulated from that?
Mark Masson: (
Well, it's definitely not insulated it. It's actually the, uh, the treasure chest that funds it. If you can think about it that way, really, when you, when you think about, um, what, where does the money come from right to, to pay those premiums and make no think about it talents, especially, at the earlier ends of the career spectrum are really in command in, in lots of ways and they are commanding a premium from what they had been before. Let's put it that way, at least a elevated level of pay as well as many other things that they're looking for. A certainly, um, operational budget T E budgets have been suppressed for a couple of years, but they will come back as well. It's only a, a, a free ride for some, some time. Now. The other thing is that, um, there are costs that, uh, aren't really being thought about.
Mark Masson: (
I mean, the idea of testing return to work hybrid, all of these things cost. So it there's a lot of pressure on the budgets, even if it seems like people aren't in the office moving around quite a bit, right. And even that will come back so where the money comes from, even if it isn't incredibly explicit at the moment is that is the profits at the end of the year, otherwise known as partner compensation, right? So there's pressure on partner compensation to keep those premium aside. At some point there's gonna be dealing on that. Right? So, um, it really constrains a, sometimes a firm's ability to differentiate pay at those levels. Now firms have been doing very well, accounting law consulting all across the, the, the partnership kind of structure. Um, they've been doing well in this economy. Um, interestingly it, that hasn't really come home to roo, but there is an impact there as, as the, the premiums stay high.
Mark Masson: (
And I think this goes back to some of the dimensions on which, firm leadership is really thinking about, holding partners accountable or, or really, um, focusing in on the contributions they need from their partner and from their partner leaders, right, creating the right work experience, um, developing, people up through their career, gaining skill sets, much more quickly effective team deployment. Really also coming outside the box and thinking about new solutions for, uh, for clients again, to get to that, that advisory and sort of the institutional client level. So what I think the impact is is, is happening. And I think it's in full motion right now. It's not that it's happened. And you can point to these are the trends, but, uh, the evolution here is that is too dimensional. One is on the partner level, which we're, we're asking different things of them sort of over time and sort of shifting on its on its own access, even without somebody changing the partner compensation framework explicitly.
Mark Masson: (
The other thing is it's, it's also in the midst of trying to understand how to, uh, level the playing field on the staff level, they're commanding a higher premium, what do we need to ask of them? How does that expectation of contribution need to change and how do we lead manage and develop them as a result, right. Uh, you know, just paying more will only happen for so long for the same job. And we're gonna have to ask for unique and, and modern, nice contributions from that workforce that wants to work differently at a higher premium level. And that means something for how the partners are engaging with them as well.
Dan Hood: (
So there's a lot to unpack there. We've talked a lot about the things that can be done, uh, within a partner, a partner comp, framework, and things that firms may be wanting to do. I wanna dive a little bit more into how, how they can bring all those things together, but we're gonna take a quick break before we do all right. And we're back talking to mark Masson, uh, of Axiom consulting partners about, partner comp and all the different ways that it can be used, uh, to improve firms, not just to divvy up the profits into the end of the year, uh, but to improve firms. And you've, you've, you've pointed to a lot of the ways in which, uh, well, you pointed to a lot of things that firms want partners to you, for instance, developing staff, that sort of thing. And, and, and obviously, as you describe it, it makes sense. This is the kind of thing that you can reinforce, uh, or guide through a partner com system. But maybe we can dive a little bit more specifically into how they can do that. How you, how do you tie partner conversation to your broader strategic initiatives as a firm, whether it's, like I said, developing staff or, or working on recruit or attention or whatever the goals may be, how, uh, how do they go about that specifically?
Mark Masson: (
It's a, it's a great question. And I think this is probably one of the, the loosest connections for firms is really making that link and it, it really starts back on, on the strategic vision itself. Right? Most firms have one that most of them are probably fine. They're probably good. Uh, could they be better maybe, but could the leadership and the partners be more aligned, better aligned on, on sort of what is going to actualize them achieving that strategy? Almost certainly yes. In every single case. Right. And, and I think there's, there's sort of a bridge there. Right? Right. You gotta, you have to be able to go from high, high, level overarching strategic goals. We wanna grow by so much. We want work with these types of clients, do this kind of work to the drivers of getting there. Right. So, um, if you think about something like, Hey, we want to have, more institutional clients, advisory work, multi-service work and deep client relationships at the senior level.
Mark Masson: (
You have to ask the next question. Well, what are some of the drivers at get me there? Right. Well, oh, interesting. We, we need to introduce them to expertise beyond the first contact. We have to have a network of relationships within that firm or that company. We have to have a succession of our staff at every level, connecting with their staff or their equal partners or, or level up on, on that, that level. We have to be very knowledgeable about the kinds of services and, and impact we can bring to them. So you dig down and, and then you say, well, what are the, what are the processes? What are the cap firm capabilities that we have to have that match those, that in fact, we have to exercise those muscles right. And build those muscles, sustain those muscles so that we can perform at the highest level, right.
Mark Masson: (
When we're, when we're in those situations. So going through that exercise of really mapping out the strategy from goals to areas like people or clients and growth delivery, etc., And getting down to those, those drivers of what will actualize is that strategy is important. An important connection point to saying, and so what do we need our partners to do very specifically, or what needs to be done underneath there very specifically, is that a, a contribution that partners can uniquely do well, yes. Expertise, delivering expertise, partnering to deliver multidimensional solutions under standing trends in the market and connecting that to new solutions that is uniquely a partner type of contribution. Great. Well, if it can't be done by others, it's a partner contribution. Terrific. Who should do that? Should every partner do that? Is that a, an area that is a bit more specialized for people have a higher, a higher and better use in, in some pockets.
Mark Masson: (
And then how do we create those roles and contribution expectations? And then of course the metrics to get there. So there is a, a very linear, not so much linear, but direct process of translating your strategy into capabilities, into unique partner contributions, and then asking yourself the question, is it one role? Is it many roles? How do we define the contributions in, in words that people understand? How do we contain them? So there's not, again, 42, there's rather five or 10 things, and then build in metrics or go collect them that people trust or repeatable are trustable and really drive behavior.
Dan Hood: (
Gotcha. I'm glad you mentioned metrics cuz that, uh, that sort of leads me naturally to my next question, which is, um, uh, one of the problems I think that firms have with a lot of their strategic initiatives is they don't necessarily have, like you said, that specific level of how does this, this high level goal here translate on the ground into, uh, specific things, um, you know, measurable things, right? How do you, uh, how do you, you be able to manage it cuz you measure you, you manage what you measure. So they need to be able to, to, to, uh, translate that into specific actions. And one of the ways they can do that is through data, uh, partner, compensations, obviously, uh, data driven kind of thing. There's a lot of data points that come out of it. There's a lot of data points that can go into it in terms of, you know, we want you to accomplish X over this period and something like that. Uh, and it, I wanna sort of just take a step back and think about that data and how firms can use all that data, not just the partner comp data, but all the other data that a firm generates, um, to, to identify issues, to improve performance, to, you know, find what's wrong and, and fix it or to, to lead the firm on to, to, to better and greater things. How do you, how do you manage that?
Mark Masson: (
This is really probably one of the most exciting things out there that, that, um, we're encountering and, and solving with clients it's there is actually quite a lot of data in a professional service firm. I mean, just getting bills out the door requires you to have data on what people have done, uh, the time they they've spent kinds of things they've done with it. And I'll, I'll acknowledge that some of that data is a little squishy in terms of itself reported, right? And there's maybe not all the diligence in the world in some cases, depending upon what, what it's being used for. So time recording, etc. However, there's quite a bit that could be made out of it. That firms are leaving on the tape, will some know it and are just having difficulty getting it out. So, you know, here's a couple, a couple illustrations of what you can do with data that is at fingertips of every single firm.
Mark Masson: (
It, it doesn't require a dozen subscriptions or some sort of, uh, you know, fancy, uh, nobody else knows about it kind of box of information over there. It's in your, it's in your HR, it's in your performance, it's in your CRM. Uh, one of them is, is client growth, potential and client relationship strength, right? And it's not just about touches. There's plenty of technology out there and platforms that will tell you whether you've, been able to contacted your client enough or you've talked to them enough, you've emailed enough. And that's, that's, you know, keep being in contact with your clients is important. However, you know, clients respond to a lot of different stimuli about the, the experience they're having and they can't always articulate to you, right, exactly why they're doing more with you doing less with you, how they perceive you, right. Um, even if you ask them, but it can show up in your data, right.
Mark Masson: (
You can tell the billing trends and when people have taken on more services with you over time, the, they trend it up and deeper as a relationship. How many connection points you have by and looking at what's mattered, what teams have we deployed to solve their most critical problems? Um, what has been the team configuration? How much time has the partner put in or the senior members that expertise put in and what have they been doing with that time? Has it really been that that highest and best use, has it really been client relationship management, delivering expertise? Um, you can think about responsiveness within teams, what services and the journey a client is taking through the firm. There's just so many signals that you can see. Um, and you can put that all together and, uh, really at, at just a, a basic level with a little bit of sophisticated analytics, you can, you can do some correlations around what has worked, but you can even get predictive and you can use machine learning to, to see, where the next trend is gonna be for an individual core, a sector, an industry, and really monitor not only the health of relationships, but, but where a trend.
Mark Masson: (
So I think that's a big area that, has a lot, a lot of potential, tens of millions for, for a lot of firms in the, in the top 30 or 40 that they can get out of it and they can action on it. You can see what's causing, you can take action on the teams you put on the field, how you're serving them, and a host of other things that lead to business processes and indeed partner compensation at the end of the day partner leader compensation and how you, how you measure that and reward that. Another illustration of this is, is the attrition problem, right? I mean, a very similar, way of, of going about that narrow is, you know, I think human beings naturally, but, but firms and leaders like myself, my hope firm would naturally segment this problem into, we have people in certain service lines or inter geography, certain parts of their career at a level more or less, you know, on an age or, or not, they have families they don't and just kind of your mind takes over and just, you instinctively know what they want out of the experience and how they're reacting to that.
Mark Masson: (
But the truth is human beings are pretty complex, right? They react to, to, to various things and they care about various things. Sometimes that aren't really all that instinctive to understand. So that person that's working 60 or 70 hours a week. It might matter, especially if it, it goes over a long period of time, but they might be working on something they really love. And if you can get them there, right, that might be fine. And there's probably three or four other signals. And these groups of people, there's groups of people within firms that respond to similar signals, but they cross boundaries. They're not all sitting in one area in one office in a corner and saying, here I am over here, we are the same. Right? You have to see that. And you can see that through the data by who has gone, who's left, who who's promoted and developed and what their experience holistically has been with the teams.
Mark Masson: (
They've worked with people they've worked with types of partners. They've worked with work and clients and, and, and many other things that go into that basket. So you can actually get ahead of attrition by looking at the kinds of things that have driven in the past and quite, quite directly, what's the best way to acquire the talent you need. Don't lose 'em in the first place. Right. And that's what a lot of people are trading a lot of people. So I think there's a lot data can be done on, on client growth and relationship strength, and really solving the attrition problem that most are, are really having trouble with right now. Um, but let me take it one step further because that's just illustrations of what you can do. One part of your question was why are firms having trouble with it? Why are they maybe not getting the value out of their data?
Mark Masson: (
Cause it's there. Right. But you know, I think the, the common refrain is we've got these systems. Uh, they're not always that some things are not that accurate. They don't speak to each other. Right. Uh, I can't even get a report on simple things like X and Y out of my systems. Um, and that is a real problem. It, it takes, it truly does take special capabilities sometimes to come in and be able to pull data out of various systems, pipe it naturally into one place only to be able to do this, this analytics. So, most firms don't have, what, what I would say is data engineering in house, and that's a key set, a key capability. Oftentimes that's where a lot of our work, starts with clients is, is just getting the data in shape to be able to tell them incredibly interesting things.
Mark Masson: (
Once we do though, there's a, there's a, an accelerate of kind of process of answering really high order question. So it's worth the investment, but that that's typically a trip has. The other is the willingness of a firm and partners and leaders are not the only people, but affirm generally to absorb the insights through data, trust them rather than their gut instinct. And that takes a bit of a change process from people that know how firms operate now to, understand those issues and expression of them and to offer something better and, get people convinced of what's on the other side.
Dan Hood: (
All right. We are very much, I mean, it's one of those interesting things. When we talk about data and the potential of data, in many ways, we're very much at the beginning of the impact of data on everything we're doing, whether it's specifically to accounting firms or just the economy as a whole, and you run the into, as you say, all the issues around data often, doesn't, doesn't work very well together, or it's not easy to get. It's not easy to pull it out of where it is and put it where you need it to be. And similarly, as you say, that mindset issue, uh, is when we still haven't overcome. So I'm, I'm curious to see where we'll be in 10 years when people are the data flows a lot more easily and people trust it a lot more, it'll be, uh, uh, reek some serious change on things. In the meantime though, uh, there's a lot to unpack here a lot to think about. I think a lot of people have been scribbling notes throughout this podcast. I think they've given a lot of great ideas — Mark Masson of Axiom Consulting Partners. Thanks very much for joining us.
Mark Masson: (
Thanks for having me, Dan. Really appreciate it. Great conversation.
Dan Hood: (
Thank you all for listening. This episode of On the Air was produced by accounting today with audio production by Wen-Wyst Jeanmary. Rate us and review us on your favorite podcast platform and see the rest of our content on AccountingToday.com. Thanks again to our guest. And thank you for listening.