Supercharge Your Compensation Program

By Ira Rosenbloom

Prior to the pandemic, hiring and retaining top talent was of critical importance to all business owners, including leaders at accounting firms. While many firms pivoted over the past few months to deal with clients’ questions and concerns related to the coronavirus, when the dust settles and working life returns to some semblance of normalcy, leaders will still need the best talent they can find.

According to the AICPA 2019 PCPS CPS Firm Top Issues Survey, staffing was a significant concern for every firm with two or more employees. Finding staff was the top issue and retaining staff appeared among their top 10 issues, which indicates that it is an issue on everyone’s mind. 

Remember, staff turnover doesn’t mean you simply replace one salary with another. Many human resources professionals predict that it costs six to nine months' salary on average every time a salaried employee is replaced.

Retention isn’t the only reason to give your compensation structure some thought. A strong compensation program can attract top talent and enhance employee satisfaction. With any job, the happier and more motivated you are, the stronger the effort you’ll put forth and the more likely it will be that you enjoy success and reward.

Employee satisfaction also leads to client retention, higher productivity and efficiency, and, ultimately, higher profitability. Need more reasons to keep your team happy? Gallup’s annual employee engagement survey of employers concluded that the most engaged teams contributed to 21 percent greater profitability, a 41 percent reduction in absenteeism and 59 percent less turnover.

Good, well-designed, impactful compensation programs bring out the best in the performers and work to create a stronger accounting firm business overall. 

So how do you supercharge your compensation system to best effect?

To begin, it’s good to remember that, while data and metrics play a big role in a fair and productive compensation system, communication and alignment are crucial to the success of the plan. 

People need to believe the goals and the mission are appropriate for them and the firm. People need to have the chance to articulate their views on the system and contribute to any potential modification. Communication must allow for formal, set times in the year — and chances to be spontaneous as well. Accounting firm management must be open-minded to views and take the time to explore with other CPA firms and professional services businesses their best practices.
While every firm has its own culture, people and needs, the process of developing the appropriate compensation system for your firm should take the following points into consideration.

Define the core performance. The right compensation program will take into account a base salary or compensation plus incentives. Everyone at every level needs to understand what the basic expectations are to earn the basic compensation, so it’s important to be clear on expectations. As a baseline, existing job descriptions should be updated and each year a performance plan should be enacted to support the base expectations. Items such as production in dollars, hours of service, community service, project completion, turnaround time, attendance, accessibility and coverage, rates and administrative functions are all appropriate specifics for that performance plan. 

Study your audience. People have their own likes, dislikes, comfort zones, visions and definitions of success. In order to optimize individual performance, the more we know what is important to our team members, the more we can create a plan to reward what we mutually feel is important and help them get to their happy place. Create a questionnaire and interview all of your team members. Bring in an outside expert to do a focus and feedback project. The goal in this process is not to find what’s common; the goal is to learn what will inspire.

Prioritize your goals. CPA firms will have different priorities at different points in time. Formulate and agree upon goals for individuals and the firm every year three months ahead of the new compensation calendar. Depending on firm size, establishing the goals may be the responsibility of specific owners. Establishing goals may also include the firm administrator, human resources professionals and the most experienced client service professionals who are not owners.

Individual level goals of improving may include the following:

• Client satisfaction
• Peer appreciation
• Engagement management
• Closing rate on new business
• Load management
• Community engagement
• Personal production
• Delegation and increased responsibilities

Firm level goals of improving may include:

• Turnaround time
• Client satisfaction
• Realization rate
• Utilization
• Accounts receivable (AR) and work in progress (WIP) turns
• Employee turnover
• Close rate
• Loss rate
• Recognition by outside ranking organizations
•  Performance in niche areas

Design a platform. Successful CPA firms like to be recognized for knowledge and technical skills. If the firm can’t deliver knowledge and results in an efficient and orderly process, the firm’s reputation for knowledge and technical expertise will be tarnished by the firm’s organizational skills. An impactful compensation system will reward both teamwork and individual performance. And teamwork may be further broken down among the small, specialty teams and the full macro team.

A specialty and individualized reward system should factor in:

• Engagement management
• Referrals
• Enhanced gross profit by unit
• Turn of AR and WIP on selected matters
   

A full team/macro reward should be a result of hitting firm-wide goals such as:

• Growth in revenues, whether by type of client or service or in total
• Improved utilization
• Gross profit levels
• Winning awards from ranking or outside organizations
• Employee retention
• Employee promotion
• Achieving milestones
• Overall internal grading of satisfaction

Engineer the economics. Total compensation, inclusive of incentives and perks, needs to fit into a budget of expenditures for the firm. The intent behind the use of an impactful compensation structure is to achieve results that will bring greater economic benefit to both the firm and the participants. That said, there should be a pool of dollars budgeted and used for the different types of incentives and rewards that will be earned.

Team-based bonuses may be capped at a percentage of an “A” result — for example, a percentage of the increase in tax season billings, a percentage of the dollar value of improved realization or value of time saved by being more efficient.

The pool of money to be available for individual performance may be capped at a percentage of payroll or a percentage of revenue.

Participation in team bonuses may be done based on department allocation, relative salary, per capita or some statistic reflecting contribution to the success. Individual bonuses may be computed as a percentage of base pay, a percentage of an achieved result or a specific dollar amount.

If the total of earned bonus dollars exceeds the pool, then a process of re-allocation needs to be determined. For some, it is preferred to allocate adjustment based upon the relative amounts earned. For other firms more analytics are involved.

Live to a process. To enhance the likelihood of strong performance, results should be monitored and mined throughout the year. Distributing bonuses several times a year is preferred to an annual bonus — although some of the achievements may be most practical to compute once a year. Firms should be comfortable measuring performance for a 12-month period, which won’t necessarily correspond with a calendar year or the year-end of the firm.

It is clear that owners have much to gain from a high-performing organization. The owners and, if needed, outside experts should work with all of the team members to maximize their abilities to earn bonus dollars and to set a culture where the bar can be raised each year, requiring stronger and stronger results for bonus dollars. 

The owners should live to the same process. Owners should see a sizeable part of their annual compensation coming from bonus dollars and incentives for them. Those owners who coach the employees should be rewarded by the success of the employees and have a bonus paid as a percentage of the pool paid out.

No matter how the bonus dollars are paid out to the employees, updating the firm on the achievement status several times a year will enhance the probability of hitting or exceeding the goals. Firms that are performance-driven also recognize that, at times, circumstances arise that will require goal modification. The more the firm culture embraces impactful compensation, the more people will be able to see high performance as a norm and natural effort.

Achievements and responsibilities are never static and compensation parameters should not be static either. The right compensation structure will motivate, challenge, reward and advance all participants and especially the firm.

Creating a successful, sustainable CPA firm requires having good people who are doing well for themselves, their clients and their peers. Basic compensation is expected. Rewards, acknowledgement and support will be the difference-makers that will create better retention of the best, highest-performing people. 
It’s a good reminder to work on your compensation system every year to make the impact that will benefit the firm and its future.

Ira Rosenbloom is chief operating executive of Optimum Strategies, LLC, in Pennsylvania, a niche CPA practice management advisory firm that specializes in enhancing firm effectiveness. Contact him at (215) 694-8084 or visit www.OptimumStrategies.com.