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Performance Is Everything: The Why, What, and How of Designing Compensation Plans

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Compensation is the largest expense that a firm incurs. And yet, few firms really manage it well. The trick is realizing it is more complex than just splitting the pie.

The crucial issues of compensation and performance are inextricably linked. In this important resource, experts August Aquila and Coral Rice offer a unique perspective on how you can align your compensation and performance management plans in order to boost performance, maximize profits, and keep both your staff and clients happy.

This companion to Aquila and Rice’s successful AICPA publication, Compensation as a Strategic Asset, will pick up where that guide left off, offering readers the “Why, What, and How” for compensation plans filtered through the lens of performance management.

The authors convey, in the simplest and clearest terms, how firms can improve overall firm performance by engaging in the following activities:

  • Develop a compelling vision
  • Develop a strategy for what you want to accomplish
  • Have the right systems in place to help achieve the strategy
  • Align individual goals with firm and departmental goals
  • Create an effective performance review system
  • Monitor performance monthly and quarterly for trends
  • Provide higher performers with more rewards than average performers

Ultimately, this guide is based on what other firms are doing, and let's you know why it’s working or why it’s not. By guiding you through a process and providing you with the tools to design a partner and staff compensation plan, Performance Is Everything will help you develop the plan that works for your firm.

About the Author:  
August J. Aquila, an internationally known consultant, speaker, and author, has held leading positions in the accounting profession for more than 25 years. He currently heads AQUILA Global Advisors, LLC, a full-service consulting firm to accounting and other professional services firms. August focuses his practice on working with firm leaders, resolving management and owner issues, helping firms develop and implement strategic and transition plans, and designing  compensation plans. August is also one of the top consultants in the area of mergers and acquisitions, having been involved in more than 150 transactions.

Before starting AQUILA Global Advisors, August held several executive leadership positions with American Express Tax and Business Services. He also was a partner in a top-50 firm. In 2003, he was elected into the Association for Accounting Marketing’s Hall of Fame, and in 2004, 2007, and 2009–11, he was selected as one of the Top 100 Most Influential People in the Accounting Profession by Accounting Today magazine.

August is the author of hundreds of articles and several books on practice management, mergers and acquisitions, and marketing. He is the coauthor, most recently, of Compensation as a Strategic Asset: The New Paradigm and Client at the Core: Marketing and Managing Today’s Professional Services Firm.

August lives in Minnetonka, MN, with his wife, Emily. For more information about August, visit www.AquilaAdvisors.com.

Coral L. Rice is one of the accounting profession’s top consultants and executive coaches in the areas of organizational development, compensation, and learning. She has helped many firms clarify mission, vision, values, and strategic direction. More importantly, she helps them accomplish their strategic goals.  She possesses unique expertise in diagnosing and designing firms’ people systems and processes (for example, recruitment, retention, and succession) to support these goals. Specifically, she has provided direction to accounting firms in the redesign of their partner and staff performance management and pay-for-performance compensation systems. She is the coauthor, most recently, of Compensation as a Strategic Asset: The New Paradigm.

Coral developed the workshop, The Reluctant Salesperson™: A Realistic Approach to Practice Development for the CPA, as well as a comprehensive partner development program. She also facilitates group workshops and provides executive coaching to partners in a variety of areas.

Coral serves as a global senior consultant in FranklinCovey’s 4 Disciplines of Execution Practice and has served both Fortune 100 and smaller clients in a variety of consulting roles.

Coral and her husband, Dave, enjoy golf, volunteering, and sharing time with their son and daughter-in-law, as well as other family members and friends.

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Excerpt

Preface

Performance is Everything is our second book on compensation for professional services firms. Our first book, Compensation as a Strategic Asset: The New Paradigm attempted to capture in one place the current state of compensation plans used by CPA firms throughout the country.  Our first book summarized the existing knowledge about how compensation plans were working within CPA firms and offered an introduction to implementing a pay-for-performance system. The two books are meant to complement each other. There is a great deal of practical information in the first book that is not repeated in this second book, but is still very relevant.

After we started writing this book we realized it would be impossible to write about compensation without looking at the firm as a whole. Over the years, many articles have been written about owner and employee compensation. Yet, compensation problems still exist in most firms. Our research shows that more than 50 percent of the owners in firms today are dissatisfied with the current compensation system. And, most owners do not have written goals tied to bonus compensation.

Performance is Everything comes from our current thinking based on our work over the past five years with a number of firms that were facing challenges with compensation. As we worked with more clients, it became clear that firms need not only to choose the right compensation plan for their practices (and not just copy another firm’s plan), but develop an overall system that encompasses performance management and compensation. It also became clear that firm leaders need to understand that their compensation system must closely align with the firm’s strategic initiatives and they need to know the key choices available when designing a compensation plan and how to best make these choices. So, we have worked with firms to help them design better compensation plans—plans that are easier to understand and administer, plans that are fairer, and plans based on performance.  We now know a lot more about compensation plans than we did five years ago and expect to know even more five years from now.

Our approach to helping firms achieve better, if not superior, performance, started with the reward element—compensation. We soon realized that the puzzle was a little more complex than just figuring out how to split the pie. So, this book is not just another book about compensation plans and how to split profits.

What this book is about, then, is a new perspective on the crucial topics of performance and rewards. It’s like the old, traditional saying about love and marriage—“You can’t have one without the other.” We address the core subject of building a high performance firm, no matter its size.  We also address the need to create a structures and systems that align with the firm’s strategies because we know now that high performance does not happen in a vacuum.

Our intention is to convey, in the simplest and clearest terms, how firms can improve overall firm performance by engaging in the following activities:

  1. Develop a compelling vision
  2. Develop a strategy for what you want to accomplish
  3. Have the right systems in place to help achieve the strategy
  4. Align individual goals with firm and departmental goals
  5. Create an effective performance review system
  6. Monitor performance monthly and quarterly for trends
  7. Provide higher performers with more rewards than average performers

This is not theory. This is what firms must do to retain high performers and generate higher profits. Rewards are not something on which you focus at the end of the year. They are an integral part of firm management. Our objective is for you to take that understanding and mold it to your own practice.

While the accounting profession has not drastically changed over the years, the management of an accounting practice certainly has. This will not only continue, but we expect it to accelerate. It will be up to firm leaders to prepare their firms for tomorrow. They must learn how to manage their firms successfully to compete for clients, talent, and profits.

Performance depends on how the firm is structured, how it is governed, how it is managed and how it serves clients.  And that too is what this book is—managing a firm to achieve superior performance, to meet the needs of its people, and above all, to meet the needs of its clients.

The ideas, suggestions, and orientations of this book are not derived from abstract theory about what a firm should be. They are based, rather, on the broad and extensive experience we both have had as consultants, practitioners in accounting firms, and executives in public companies—more than 60 years between us. Most of what we write about in this book, however old, however new, stems from our experience and firsthand knowledge of what works. We offer no advice other than that which we know to be practical and viable and that has delivered a track record of results. We have also drawn from comparable experiences of other innovative practitioners and sound advisors.

Compensation is a firm’s largest expenditure. Yet few firms do a good job managing it. We know that a compensation system can inspire or discourage people. It can get them to perform at peak levels or stroll through the valleys. It can motivate the right people to stay or go and it can motivate the wrong people to stay or go. It can encourage your people to provide outstanding client service and achieve your strategic goals. A good compensation plan can advance your firm to new levels of financial success. A poorly designed compensation plan, however, may motivate owners and employees to do the wrong things.

There is much more to learn about how to structure the contemporary accounting firm to meet its goals and properly serve its clients. And we now know what leaders must do to be successful.

A final point: We know this is not the last book written on this topic, but we hope we have contributed to the overall body of knowledge and provided new ideas and perspectives for you, our readers.

August Aquila and Coral Rice

June, 2012

System Requirements

Table of Content

About the Authors

August J. Aquila, Ph.D.



Coral L. Rice



About the Publisher

AICPA

About the AICPA The American Institute of CPAs is the world’s largest member association representing the accounting profession, with more than 412,000 members in 144 countries, and a history of serving the public interest since 1887. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting. The AICPA sets ethical standards for the profession and U.S. auditing standards for private companies, nonprofit organizations, federal, state and local governments. It develops and grades the Uniform CPA Examination, and offers specialty credentials for CPAs who concentrate on personal financial planning; forensic accounting; business valuation; and information management and technology assurance. Through a joint venture with the Chartered Institute of Management Accountants, it has established the Chartered Global Management Accountant designation, which sets a new standard for global recognition of management accounting.