Compensation as a Strategic Asset

CHAPTER 11IS A PAY FOR PERFORMANCE SYSTEM RIGHT FOR YOU?

“There’s nothing more unequal than the equal treatment of unequal people.”

—Thomas Jefferson

When you think about the saying, “To steal second base, you must take your foot off first base” you may also think to yourself, “Yeah, and you can be thrown out if you do!” To determine whether a pay for performance compensation system (one in which pay decisions are based on defined performance levels rather than on entitlement, tenure, or other non-performance-related criteria) is right for you, you must be clear about what you hope to accomplish by having one. You must also be aware of the challenges and potential risks in moving to pay for performance.

PAY FOR PERFORMANCE CHALLENGES

Rich Rinehart, managing owner of Grant Owners and consultant to professional services firms, shared with us what an owner in a large regional firm in the Midwest told him, “I had the best year in my career last year. I sat down with our managing owner to go over this year’s bonus and my base compensation for next year. I was elated with the result, the most money I’ve ever made. Then I asked to see the owner compensation schedule.”

Rinehart believes whether you like it or not, compensation is absolute and relative in CPA firms, especially in the owner ranks. When firms move to performance-based compensation systems, they will necessarily compare one owner to another. As competitive creatures we all want to know how we did relative to our peer group. ...