HOW TO RUN A
COMPENSATION COMMITTEE
PRESENTED BY:
MARC ROSENBERG, CPA
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
The Rosenberg AssociatesThe Rosenberg Associates Marc Rosenberg, CPA, PresidentMarc Rosenberg, CPA, President
Over 20 years consulting to CPA firmsOver 20 years consulting to CPA firms
Consultant, author and speaker to CPAsConsultant, author and speaker to CPAs
700 client firms from coast to coast700 client firms from coast to coast
Named one of the most recommended CPA firm Named one of the most recommended CPA firm consultants by consultants by INSIDE Public AccountingINSIDE Public Accounting
Top 100 Most Influential People in Top 100 Most Influential People in Accounting Profession – Accounting Profession – Accounting TodayAccounting Today
- - 99 consecutive years consecutive years
CPA Firm Management & Governance CPA Firm Management & Governance
CPA Firm Succession Planning: A Perfect StormCPA Firm Succession Planning: A Perfect Storm
Strategic Planning & Goal Setting for ResultsStrategic Planning & Goal Setting for Results
How to Negotiate a CPA Firm MergerHow to Negotiate a CPA Firm Merger
How to Operate a Compensation CommitteeHow to Operate a Compensation Committee
What What ReallyReally Makes CPA Firms Profitable? Makes CPA Firms Profitable?
Guide to Planning the Firm RetreatGuide to Planning the Firm Retreat
Effective Partner Relations & CommunicationEffective Partner Relations & Communication
How to Bring in New PartnersHow to Bring in New Partners
Our proprietary consulting Our proprietary consulting methods, handouts, methods, handouts, checklists, and intellectual checklists, and intellectual capital are captured in capital are captured in each of these monographs.each of these monographs.
Order monographs at:www.rosenbergassoc.com
TitlesTitles
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Rosenberg’s work with CPA firms:Rosenberg’s work with CPA firms: Partner compensation & retirementPartner compensation & retirement Succession planningSuccession planning MergersMergers Facilitation of retreatsFacilitation of retreats Strategic planning & goal settingStrategic planning & goal setting Practice management reviewsPractice management reviews Partner relations and conflictPartner relations and conflict Expert Witness-Practice ManagementExpert Witness-Practice Management
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
The Rosenberg AssociatesThe Rosenberg Associates The Rosenberg MAP Survey The Rosenberg MAP Survey – –
Accounting Today Accounting Today calls it “generally calls it “generally accepted as the barometer for CPA firm accepted as the barometer for CPA firm practice management.”practice management.”
The Rosenberg Blog- The Rosenberg Blog- Marc shares his Marc shares his thoughts every week on hard-hitting, thoughts every week on hard-hitting, topical issues that CPA firms face every topical issues that CPA firms face every day. day. http://blog.rosenbergassoc.comhttp://blog.rosenbergassoc.com
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Where Marc Goes In His Free TimeWhere Marc Goes In His Free Time
MVP
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Final Ground ruleFinal Ground rule
I take questions I take questions
during the presentationduring the presentation
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Poll of ListenersPoll of Listeners
Which describes your firm:Which describes your firm:
a.a.We use the comp committee We use the comp committee todaytoday..
b.b.We are We are thinkingthinking of changing to the comp of changing to the comp committee.committee.
c.c.Neither of the above.Neither of the above.
Please key in your responses to me.Please key in your responses to me.
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
What’s Important?What’s Important?Success Factors
Blue Collar
Performance evaluation
Production - # of widgets & quality
People development
N/A
Interpersonal skills
Nice but not critical
Work hours How MUCH he/she works
Teamwork ME
Intangibles Obey rules and be on time
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Success Factors
Blue Collar Corporate World
Performance evaluation
Production - # of widgets & quality
Achieve goals
People development
N/A What could be more important?
Interpersonal skills
Nice but not critical
Critical
Work hours How MUCH he works
Not how MUCH, but how SMART she works
Teamwork ME Us. Company is #1.
Intangibles Obey rules and be on time
Leadership; teamwork;Innovation
What’s Important?
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Which is a CPA firm partner Which is a CPA firm partner closer to?closer to?
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Success Factors
Performance evaluation
Production - # of widgets
Book of businessBillable hours
Achieve goals
People development
N/A Not rewarded much What could be more important?
Interpersonal skills
Nice but not critical
Not rewarded much Critical
Work hours How MUCH he works
More hours; moreproduction
How SMART she works
Teamwork Not critical Lone Rangers allowed Company is #1
Intangibles Obey rules; be on time
Not rewarded much Leadership; teamwork;Innovation
What’s Important?
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
What Makes a CPA Firm What Makes a CPA Firm GreatGreat??
1.1. Production (Finding, Minding, Grinding)Production (Finding, Minding, Grinding)
2.2. Satisfying clients; delivering GREAT serviceSatisfying clients; delivering GREAT service
3.3. GrowthGrowth
4.4. Quality workQuality work
5.5. Leadership and managementLeadership and management
6.6. Skilled, motivated staffSkilled, motivated staff
7.7. Leadership developmentLeadership development
8.8. The right people on the busThe right people on the bus
9.9. Intangibles (teamwork, loyalty, work ethic, etc.)Intangibles (teamwork, loyalty, work ethic, etc.)
10.10. Accountability; follow throughAccountability; follow through
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
What Should You
Compensate Partners For?
ExecutiveExecutive
1.1. Finding-Minding-Grinding
Finding-Minding-Grinding
2.2. Satisfying clients
Satisfying clients
3.3. GrowthGrowth
4.4. Quality work
Quality work
5.5. Leadership Leadership
6.6. Great staffGreat staff
7.7. Leadership development
Leadership development
8.8. Right people on the bus
Right people on the bus
9.9. IntangiblesIntangibles
10.10. Accountability
Accountability
Production Production WorkerWorker
1.1. FindingFinding2.2. Minding
Minding3.3. GrindingGrinding
OR
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Best PracticesBest PracticesPartner CompensationPartner Compensation
1.1. Performance – basedPerformance – based
2.2. Practice development plays a Practice development plays a meaningful rolemeaningful role
3.3. Integrate with strategic planning, goal Integrate with strategic planning, goal setting and performance evaluationssetting and performance evaluations
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Best PracticesBest Practices
4. Teamwork rules: Partners do what 4. Teamwork rules: Partners do what the firm the firm needsneeds them to do them to do
5. Multi - tiered:5. Multi - tiered: Return on capitalReturn on capital BaseBase Incentive bonusIncentive bonus
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Best PracticesBest Practices
6. MP has more impact than other 6. MP has more impact than other partnerspartners
7. Reward intangibles7. Reward intangibles
8. Flexibility8. Flexibility
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
9. Leadership vs. Management vs. Administration*9. Leadership vs. Management vs. Administration*
LeadLeadWorth Worth MORE MORE than than your billing rateyour billing rate
ManageManageWorth your billing rateWorth your billing rate
AdministerAdministerWorth Worth LESSLESS than your than your billing ratebilling rate
* Originally presented by Bob Bunting.THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Does your firm have a “best practice” Does your firm have a “best practice” that’s missing from the 9 practices I just that’s missing from the 9 practices I just
shared with you?shared with you?
1.1.Performance-basedPerformance-based
2.2.Practice development Practice development
3.3.Link compensation to the Link compensation to the firm’s strategic planfirm’s strategic plan
4.4.TeamworkTeamwork
5.5.Multi-tier comp componentsMulti-tier comp components
6.6.MP impact on allocationMP impact on allocation
7.7.IntangiblesIntangibles
8.8.FlexibilityFlexibility
9.9.LeadershipLeadership
Please key it Please key it
in to me in to me nownow..
QTHEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Partner Compensation SystemsPartner Compensation Systems
Comp Comp CommitteeCommittee
FormulaFormula
Paper & PencilPaper & Pencil
Ownership PctOwnership Pct
MP DecidesMP Decides
Pay EqualPay Equal
All DecideAll Decide
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Partner Compensation SystemsPartner Compensation Systems2 2
PtrsPtrs3-4 3-4
PtrsPtrs5-7 5-7
PtrsPtrs8-12 8-12 PtrsPtrs
13+ 13+ PtrsPtrs
20112011
TotalTotal
Comp CommitteeComp Committee 0%0% 19%19% 23%23% 54%54% 70%70% 32%
FormulaFormula 23%23% 36%36% 36%36% 29%29% 11%11% 30%
Paper & PencilPaper & Pencil 3%3% 4%4% 5%5% 2%2% 2%2% 3%
Ownership PctOwnership Pct 10%10% 4%4% 6%6% 2%2% 8%8% 5%
MP DecidesMP Decides 12%12% 11%11% 12%12% 6%6% 9%9% 10%
Pay EqualPay Equal 32%32% 6%6% 4%4% 4%4% 0%0% 7%
All DecideAll Decide 20%20% 20%20% 14%14% 3%3% 0%0% 13%
OpenOpen 98%98% 82%82% 81%81% 65%65% 49%49% 77%
ClosedClosed 2%2% 18%18% 19%19% 35%35% 51%51% 23%
2012 Rosenberg MAP Survey2012 Rosenberg MAP Survey
How DifferentHow DifferentCompensation MethodsCompensation Methods
Reward SuccessReward Success
Compensation System
Characterized By:
Pay Equal 3 MusketeersConflict avoidersPartners deluded…
Ownership percentage What does this have to do with performance or success?
Paper and PencilAll Decide
Democracy rulesProne to politics and cliquesNarrows gap from high to low
Formula Production focused; very little if any recognition to other success factors
Comp CommitteeMP Decides
Major premise: What makes the firm successful?THE
ROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Partner Compensation SystemsPartner Compensation SystemsChanges in Past 4 yearsChanges in Past 4 years
5-7 5-7 PartnersPartners
8-12 8-12 PartnersPartners
13+ 13+ PartnersPartners
20112011 20052005 20120111
20020055
20112011 20052005
Comp Comp CommitteeCommittee
23%23% 19%19% 54%54% 39%39% 70%70% 58%58%
FormulaFormula36%36% 47%47% 29%29% 39%39% 11%11% 38%38%
Per 2010 Rosenberg MAP Survey THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Best Practices Vs. Comp SystemBest Practices Vs. Comp System
BEST PRACTICES
COMPENSATION SYSTEMEqual OrOwner
%
Paper &
Pencil Formula
Comp Comm Or MP
Decides
Performance-based No Yes Yes Yes
Pract. development-meaningful role No Yes Yes Yes
Strat planning, goal setting, perf eval No Maybe Maybe Yes
Teamwork rules No Maybe Maybe Yes
Multi-tier system No Yes Yes Yes
MP has impact > other partners No Maybe Maybe Yes
Intangibles No Maybe Maybe Yes
Flexible No Maybe Maybe Yes
Leadership and management valued No Maybe Maybe Yes
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Compensation Compensation CommitteeCommittee
Remainder of WebinarRemainder of Webinar
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Compensation Committee:Compensation Committee:“The Devil is in the Details”“The Devil is in the Details”
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Compensation Committee:Compensation Committee:Why Firms Use ItWhy Firms Use It
1.1. Aligns the firm’s Aligns the firm’s visionvision with how with how partners are evaluated and partners are evaluated and compensated.compensated.
2.2. 3.3. 4.4. 5.5. 6.6.
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
StrategicPlanning
andCore Values
Partner Evaluation
PartnerCompensation
The Convergence of 3 Aspects of Management
MVP
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
StrategicPlanning
andCore Values
Partner Evaluation
PartnerCompensation
The Convergence of 3 Aspects of Management
MVP
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Compensation Committee:Compensation Committee:Why Firms Use ItWhy Firms Use It
1.1. Aligns the firm’s vision with how partners are Aligns the firm’s vision with how partners are evaluated and compensated.evaluated and compensated.
2.2. Formulas have big flaws.Formulas have big flaws.3.3. Balances rewards between production and Balances rewards between production and
intangibles.intangibles.4.4. Too many partners for each to know what Too many partners for each to know what
others contribute.others contribute.5.5. MP doesn’t want sole responsibility.MP doesn’t want sole responsibility.6.6. Partners won’t give sole power to MP; MP Partners won’t give sole power to MP; MP
doesn’t want it.doesn’t want it.
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Comp Committee:Comp Committee:Keys to SuccessKeys to Success
1.1. IF THE PEOPLE IF THE PEOPLE BEING JUDGED BEING JUDGED DON’T TRUST DON’T TRUST THE JUDGES, THE JUDGES, THE SYSTEM THE SYSTEM WON’T WORK.WON’T WORK.
PERIOD.PERIOD.
MVP
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Comp Committee:Comp Committee:Keys to SuccessKeys to Success
2. 2. RULES GOVERNING THE DECISIONS MUST BE CONSISTENT AND WELL UNDERSTOOD; PARTNERS MUST UNDERSTAND WHICH BEHAVIORS AND WHAT RESULTS TRANSLATE THE MOST TO BIGGER REWARDS.
THINGS MUST BE CLEARTHINGS MUST BE CLEAR
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Comp Committee:Comp Committee:Keys to SuccessKeys to Success
3. A SINCERE EFFORT MUST BE MADE 3. A SINCERE EFFORT MUST BE MADE BY THE JUDGES TO COLLECT ALL BY THE JUDGES TO COLLECT ALL PERTINENT INFORMATION AND PERTINENT INFORMATION AND STUDY IT. STUDY IT.
DON’T ALLOCATE COMPENSATION DON’T ALLOCATE COMPENSATION BASED ON REPUTATION, INTUITION, BASED ON REPUTATION, INTUITION, PERCEPTION, ETC.PERCEPTION, ETC.
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Comp Committee:Comp Committee:Keys to SuccessKeys to Success
4. JUDGMENTS THAT ARE 4. JUDGMENTS THAT ARE EXPLAINEDEXPLAINED AND AND COMMUNICATEDCOMMUNICATED ARE MORE ARE MORE READILY ACCEPTED THAN THOSE READILY ACCEPTED THAN THOSE THAT ARE NOT.THAT ARE NOT.
MVP
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Make-Up of CommitteeMake-Up of Committee
SmallSmall MP is permanent memberMP is permanent member Voted or appointedVoted or appointed All members must be credibleAll members must be credible Not everyone gets a turnNot everyone gets a turn Comp Comm relation to Exec CommComp Comm relation to Exec Comm
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
If your firm has a Comp Committee If your firm has a Comp Committee ANDAND an Exec Committee: an Exec Committee:
a.a.Are they exactly the Are they exactly the samesame people? people?
b.b.Are each composed of totally Are each composed of totally differentdifferent people? people?
c.c.Not the same people, but there IS some overlap.Not the same people, but there IS some overlap.
If (b) or (c), why aren’t the two committees the If (b) or (c), why aren’t the two committees the samesame people? people?
Please key in your responses to me.Please key in your responses to me.
Comp Committee:Comp Committee: Important Decisions Important Decisions
1.1. Determining the # of CC membersDetermining the # of CC members
2.2. Length of a CC member’s term?Length of a CC member’s term?
3.3. Should the CC be the same as or different Should the CC be the same as or different from the EC?from the EC?
4.4. Performance criteriaPerformance criteria
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Performance CriteriaPerformance Criteria
LeadershipLeadership People skills and People skills and
developmentdevelopment Practice Practice
developmentdevelopment Client serviceClient service
Client transitionClient transition Traditional Traditional
production measures production measures TeamworkTeamwork Good citizenshipGood citizenship
MVP
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
LeadershipLeadership
Performance in management positionsPerformance in management positions Impact performance of othersImpact performance of others Stretches people’s abilities Stretches people’s abilities Identifies challenges; resolve quicklyIdentifies challenges; resolve quickly CheerleaderCheerleader
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
People Skills & DevelopmentPeople Skills & Development
Excellence at managing all Excellence at managing all relationshipsrelationships
Staff &younger partners advance Staff &younger partners advance under his/her tutelage under his/her tutelage
Inspires people to achieveInspires people to achieve
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Practice DevelopmentPractice Development
Emphasis is on how your Emphasis is on how your teamteam performs at bringing in businessperforms at bringing in business
Moves clients upscale in Moves clients upscale in sophistication, profitability and usage sophistication, profitability and usage of multiple servicesof multiple services
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Client TransitionClient Transition
RetentionRetention ““If you leave, will your clients stay?”If you leave, will your clients stay?” Successfully moved clients to other Successfully moved clients to other
partnerspartners Transfer of Transfer of expertise expertise
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
TeamworkTeamwork
Develops a strong team beneath themDevelops a strong team beneath them Ensures that clients have multiple “touch Ensures that clients have multiple “touch
points” within the firmpoints” within the firm Shares the work among business unitsShares the work among business units
““If a partner manages a big client or a If a partner manages a big client or a big book of business ALONE, he/she big book of business ALONE, he/she would be shot.”would be shot.”
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Good CitizenshipGood Citizenship
Is a good partnerIs a good partner Treats people respectfullyTreats people respectfully Lives/breathes the firm’s core values Lives/breathes the firm’s core values
every dayevery day Sets an example of following the Sets an example of following the
policiespolicies
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
What else does your What else does your Comp Committee look at Comp Committee look at
to make their income to make their income allocations?allocations?
Please key in your responses to me Please key in your responses to me nownow
Comp Committee Operation:Comp Committee Operation: Important Decisions Important Decisions
5. How CC communicates with each partner 5. How CC communicates with each partner
6. How CC 6. How CC actuallyactually allocates the $$$: allocates the $$$:• MP recommends + group “tweaks”MP recommends + group “tweaks”• CC does a paper and pencil exercise, then tweaksCC does a paper and pencil exercise, then tweaks• Some sort of ranking/performance gridSome sort of ranking/performance grid
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Important Comp Committee DecisionsImportant Comp Committee Decisions
7. 7. Incentive Bonus or Final Year-End Distribution? Incentive Bonus or Final Year-End Distribution?
INCENTIVE INCENTIVE
BONUSBONUS
SeparateSeparate criteria from criteria from basebase
Base is a “salary”Base is a “salary”
FINAL FINAL
DISTRIBUTIONDISTRIBUTION
SameSame or similar criteria or similar criteria as the baseas the base
Base is really a draw on Base is really a draw on a final numbera final number
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Comp Committee Operation:Comp Committee Operation: Important Decisions Important Decisions
8. Use 8. Use non-bindingnon-binding paper/pencil paper/pencil exercise?exercise?
9. What data will the committee 9. What data will the committee review?review?
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Data Reviewed by CommitteeData Reviewed by Committee
1.1. Partner evaluationsPartner evaluations
2.2. Self-evaluationsSelf-evaluations
3.3. Upward evaluation by the staffUpward evaluation by the staff
4.4. Achievement of goalsAchievement of goals
5.5. Production statisticsProduction statistics
6.6. Input from MP, PICs, dept. heads Input from MP, PICs, dept. heads
7.7. Paper and pencil (non-binding)Paper and pencil (non-binding)
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Comp Committee Operation:Comp Committee Operation: Important Decisions Important Decisions
10. Reporting year & when CC 10. Reporting year & when CC deliberates.deliberates.
For those with For those with calendarcalendar year-ends, how does year-ends, how does the timing of the tax season impact the timing of the tax season impact whenwhen your CC works? your CC works?
Please key in your responses to me Please key in your responses to me nownow.. QTHEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Comp Committee Operation:Comp Committee Operation: Important Decisions Important Decisions
11. Appeals? Partner votes to 11. Appeals? Partner votes to approve?approve?
Crash Course in Crash Course in Partner Goal SettingPartner Goal Setting
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Management of a CPA Firm: The Highest Level
VISION
FIRM GOALS
PARTNER GOALS
ENGINES
Leadership
Operations
Partner Comp
Accountability
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Management of a CPA Firm: The Highest Level
VISION
FIRM GOALS
PARTNER GOALS
ENGINES
Leadership
Operations
Partner Comp
AccountabilityTHEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
6 SOURCES FOR PARTNER GOALS
ALL
PARTNER
GOALS
STRATEGICPLANNING
GOALS
ROLE INTHE FIRM
PARTNERPRODUCTION
GOALSFULFILL DAY-TO-DAY ROLE AS A
PARTNER
SELF-IMPROVEMENT
GOALSLIVE AND BREATHE
THE FIRM’S CORE VALUES
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Goal Setting: Best PracticesGoal Setting: Best Practices
1.1. IndividualIndividual goal setting starts with a goal setting starts with a firmfirm vision.vision.
2.2. Partners draft their own goals.Partners draft their own goals.3.3. Each partner has 2 kinds of goals: Each partner has 2 kinds of goals:
production & intangible.production & intangible.4.4. Think big / keep it simple.Think big / keep it simple.5.5. Monitor and coach during the year.Monitor and coach during the year.6.6. Compensate based on goal achievement.Compensate based on goal achievement.7.7. Ya gotta wanna.Ya gotta wanna.8.8. Goals should be in writing & Goals should be in writing & S.M.A.R.T.S.M.A.R.T.
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
S.M.A.R.T. GOALSS.M.A.R.T. GOALS
SS SpecificSpecific
MM Measurable Measurable
AA AttainableAttainable
RR RealisticRealistic
TT Time boundedTime bounded
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Good Words and Bad WordsGood Words and Bad Words
Use action wordsUse action words
IncreaseIncrease CreateCreate SellSell ReduceReduce JoinJoin
Avoid vague wordsAvoid vague words
CommunicateCommunicate PromotePromote InstillInstill ConsiderConsider ConceptualizeConceptualize
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Individual Partner Goals PlanIndividual Partner Goals PlanPRODUCTION GOALS
Target ActualORIGINATION
CLIENTS BASE MANAGED
BILLABLE HOURS
REALIZATION
ETC.
QUALITATIVE GOALS
QUALITATIVE GOALS Deadline Weighting
1. Head up the banking niche.
2. Delegate 100K of small clients to managers.
3. Mentor Susie Staffperson.
4. Put on a law firm dog and pony show.
TOTAL 100%
MVP
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Closed vs.Closed vs. Open Systems Open Systems
““If people are concerned about their absolute If people are concerned about their absolute level of compensation, then they level of compensation, then they cancan be be satisfied. However, if their focus is on satisfied. However, if their focus is on relative standing, then they can relative standing, then they can nevernever be be satisfied.”satisfied.”
Andrew GroveAndrew Grove
Former Chairman of the Former Chairman of the BoardBoard
Intel Intel
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Open Vs. Closed SystemOpen Vs. Closed System
OPENOPEN
Partners feel like “real” Partners feel like “real” partnerspartners
Avoids image of “smoke-Avoids image of “smoke-filled room”filled room”
See how you stack upSee how you stack up
Tough to take it awayTough to take it away
CLOSEDCLOSED
Andy Grove quoteAndy Grove quote
CC less likely to be CC less likely to be influenced by how influenced by how they think partners they think partners will reactwill react
Reduces unhealthy Reduces unhealthy competitioncompetition
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Open vs. Closed SystemOpen vs. Closed System
OPEN
PARTNERSHIP / DEMOCRACY
INALIENABLE RIGHT
CLOSED
CORPORATION
IN CORPORATIONS, DO ALL OFFICERS KNOW
EACH OTHER’S COMP?
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
““If you have an open If you have an open compensation system, compensation system, change it.” change it.”
Tony KendallTony Kendall, MP of Top 100 firm Mitchell & Titus, , MP of Top 100 firm Mitchell & Titus, describing success after 34 years of complaints describing success after 34 years of complaints
from his partners on compensation issues.from his partners on compensation issues.
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
In the last few years, have any firms In the last few years, have any firms moved from open to closed?moved from open to closed?
How well has it worked?How well has it worked?Please key in your Please key in your
response to me, response to me, now.now.
QTHEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Comp Committee TimetableComp Committee Timetable(Assume calendar year cycle)(Assume calendar year cycle)Action Item General
TimelineYour Firm’s
Actual
1. Elect CC members. March-Sept
2. Decide the 12 month cycle July
3. Create strategic plan & vision for next yr
Sept-Oct
4. Partner goal setting Early December
5. Partners evaluations Mid December
6. CC or mgmt meets one-on-one with each partner to review performance and finalize goals for coming year
Mid DecemberEarly January
7. Decide size of base and bonus pools for the coming year
Early January
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Comp Committee TimetableComp Committee Timetable(Assume calendar year cycle)(Assume calendar year cycle)
Action Item General Timeline
Your Firm’s Actual
8. Optional: non-binding paper/pencil exercise
Mid December
9. CC collects all data used to evaluate ptrs
3rd week January
10. CC meets for 1 or 2 days to allocate income
4th week January
11. CC agrees on the “messages” to be communicated to the partners
4th week January
12. Communicate CC results to each partner- Clarify criteria for coming year
Early February
13. CC or mgmt monitors progress on partner goals throughout the year
All Year
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Comp Committee’s Job At Year End:Comp Committee’s Job At Year End:Step #1 of 2: Allocate Step #1 of 2: Allocate ThisThis Year’s Year’s BonusBonus
Interest Base/Draw Bonus/Final Distr
Grand Total
Smith 24,000 339,000
Jones 20,000 318,000
Thomas 16,000 246,000
Kent 11,000 302,000
Francis 8,000 216,000
Total 79,000 1,421,000 400,000 1,900,000
TARGET
BEGINNING OF THIS YEAR - PROJECTED
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Comp Committee’s Job At Year End:Comp Committee’s Job At Year End:Step #1: Allocate Step #1: Allocate ThisThis Year’s Year’s BonusBonus
Grand Total
Interest Base/Draw Bonus/Final Distr
Amount Increase
Smith 24,000 339,000 102,000 465,000 12.9%
Jones 20,000 318,000 145,000 483,000 13.4%
Thomas 16,000 246,000 32,000 294,000 6.9%
Kent 11,000 302,000 91,000 404,000 9.2%
Francis 8,000 216,000 80,000 304,000 13.9%
Total 79,000 1,421,000 450,000 1,950,000 11.4%
BEGINNING OF THE YEAR – PROJECTED 79,000 1,421,000 400,000 1,900,000
END OF THIS YEAR – DISTRIBUTE BONUS/FINAL DISTRIBUTION FOR THIS YEAR:
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Comp Committee’s Job At Year End:Comp Committee’s Job At Year End:Step #2: Reset Base/Draw For Step #2: Reset Base/Draw For Next YearNext Year
Interest Base/Draw Bonus/Final Distr Grand Total
Smith 26,000 353,000 (+4%)
Jones 21,000 338,000 (+6%)
Thomas 18,000 252,000 (+2%)
Kent 12,000 323,000 (+7%)
Francis 10,000 235,000 (+9%)
Total 87,000 1,501,000 (+6%) 470,000 2,058,000
TARGET
LAST YEAR: 79,000 1,421,000 450,000 1,950,000
END OF THIS YEAR – ADJUST BASE AND START THE NEW YEAR:
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Compensation Committees: Compensation Committees: ChallengesChallenges
1.1. How CC members set their own pay.How CC members set their own pay.
2.2. CC members end up the highest paid.CC members end up the highest paid.
3.3.
4.4.
5.5.
6.6.
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Comp Committee ChallengesComp Committee Challenges
1.1. How CC members set their own pay.How CC members set their own pay.
2.2. CC members end up the highest paid.CC members end up the highest paid.
How does your CC deal with these two How does your CC deal with these two challenges?challenges?
Please key in your responses to me Please key in your responses to me now.now.
Compensation Committees: Compensation Committees: ChallengesChallenges
1.1. How CC members set their own pay.How CC members set their own pay.
2.2. CC members end up the highest paid.CC members end up the highest paid.
3.3. Don’t you eventually Don’t you eventually havehave to use a to use a formula? formula?
4.4. Separate EC from CC. Yes? No?Separate EC from CC. Yes? No?
5.5. Avoiding image of “smoke filled room.”Avoiding image of “smoke filled room.”
6.6. Dealing with “problem partners”.Dealing with “problem partners”.
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
Evolution of a Comp CommitteeEvolution of a Comp Committee
As the firm grows in size
Jury Management
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
The Marc Rosenberg Blog- The Marc Rosenberg Blog- Marc shares his thoughts every week Marc shares his thoughts every week
on hard-hitting, topical issues that on hard-hitting, topical issues that CPA firms face every day.CPA firms face every day.
http://blog.rosenbergassoc.comhttp://blog.rosenbergassoc.com
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
QUESTIONS
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com
The Rosenberg AssociatesThe Rosenberg Associates
1000 Skokie Blvd. Suite 5551000 Skokie Blvd. Suite 555
Wilmette, IL 60091Wilmette, IL 60091
Phone: 847-251-7100Phone: 847-251-7100
Fax: 847-251-4622Fax: 847-251-4622
[email protected]@rosenbergassoc.com
THEROSENBERG ASSOCIATES LTD.www.rosenbergassoc.com