Compensation as a Strategic Asset

CHAPTER 13COMPENSATING THE MANAGING OWNER

“In many firms, the managing partner title is utilized to describe a person who is really an administrative partner with no real power to ‘manage’ the firm (or other partners). In contrast, a true managing partner is the key person in achieving the firm’s financial and other goals.”

—Stephen Weinstein, CPA

We are often asked, when developing compensation plans for firms, “What’s a managing owner worth?” While we are unsure about the definitive answer to this question, there is a different question we can answer: “What should a managing owner be doing?” Only when a firm has a clear understanding of the managing owner role and the expectations of the incumbent is it possible to determine what the individual should be paid and how.

Determining compensation for the managing owner of a small firm is generally less difficult than determining it for a managing owner in a larger firm because the managing owner in a small firm usually maintains a book of business and is evaluated on similar criteria as other owners. In larger firms, however, where the managing owner may have little or no billable time, compensation becomes a more complex issue.

Some of the issues with which larger firms struggle include:

▮ What happens if the managing owner wants to step down early?

▮ If so, does the managing owner rebuild his or her client base?

▮ What type of security or safety net does the managing owner have?

▮ What happens if owners believe the managing owner ...