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HOW TO RUN A COMPENSATION COMMITTEE

HOW TO RUN A COMPENSATION COMMITTEE PRESENTED BY: MARC ROSENBERG, CPA. THE ROSENBERG ASSOCIATES LTD. www.rosenbergassoc.com. The Rosenberg Associates.

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HOW TO RUN A COMPENSATION COMMITTEE

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  1. HOW TO RUN A COMPENSATION COMMITTEE PRESENTED BY: MARC ROSENBERG, CPA • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  2. The Rosenberg Associates Marc Rosenberg, CPA, President Over 20 years consulting to CPA firms Consultant, author and speaker to CPAs 700 client firms from coast to coast Named one of the most recommended CPA firm consultants by INSIDE Public Accounting Top 100 Most Influential People in Accounting Profession – Accounting Today - 9 consecutive years • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  3. CPA Firm Management & Governance CPA Firm Succession Planning: A Perfect Storm Strategic Planning & Goal Setting for Results How to Negotiate a CPA Firm Merger How to Operate a Compensation Committee What Really Makes CPA Firms Profitable? Guide to Planning the Firm Retreat Effective Partner Relations & Communication How to Bring in New Partners Titles Our proprietary consulting methods, handouts, checklists, and intellectual capital are captured in each of these monographs. Order monographs at: www.rosenbergassoc.com • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  4. Rosenberg’s work with CPA firms: Partner compensation & retirement Succession planning Mergers Facilitation of retreats Strategic planning & goal setting Practice management reviews Partner relations and conflict Expert Witness-Practice Management • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  5. The Rosenberg Associates The Rosenberg MAP Survey – Accounting Today calls it “generally accepted as the barometer for CPA firm practice management.” The Rosenberg Blog- Marc shares his thoughts every week on hard-hitting, topical issues that CPA firms face every day. http://blog.rosenbergassoc.com • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  6. Where Marc Goes In His Free Time MVP • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  7. Final Ground rule I take questions during the presentation • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  8. Poll of Listeners Which describes your firm: We use the comp committee today. We are thinking of changing to the comp committee. Neither of the above. Please key in your responses to me.

  9. THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  10. What’s Important? • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  11. What’s Important? • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  12. Which is a CPA firm partner closer to? • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  13. What’s Important? • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  14. What Makes a CPA Firm Great? Production (Finding, Minding, Grinding) Satisfying clients; delivering GREAT service Growth Quality work Leadership and management Skilled, motivated staff Leadership development The right people on the bus Intangibles (teamwork, loyalty, work ethic, etc.) Accountability; follow through • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  15. What Should You Compensate Partners For? Executive Production Worker Finding Minding Grinding • Finding-Minding-Grinding • Satisfying clients • Growth • Quality work • Leadership • Great staff • Leadership development • Right people on the bus • Intangibles • Accountability OR • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  16. Best PracticesPartner Compensation • Performance – based • Practice development plays a meaningful role • Integrate with strategic planning, goal setting and performance evaluations • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  17. Best Practices 4. Teamwork rules: Partners do what the firm needs them to do 5. Multi - tiered: Return on capital Base Incentive bonus • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  18. Best Practices 6. MP has more impact than other partners 7. Reward intangibles 8. Flexibility • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  19. 9. Leadership vs. Management vs. Administration* • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com * Originally presented by Bob Bunting.

  20. Does your firm have a “best practice” that’s missing from the 9 practices I just shared with you? • Performance-based • Practice development • Link compensation to the firm’s strategic plan • Teamwork • Multi-tier comp components • MP impact on allocation • Intangibles • Flexibility • Leadership Please key it in to me now. Q • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  21. Partner Compensation Systems • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  22. Partner Compensation Systems 2012 Rosenberg MAP Survey

  23. How DifferentCompensation MethodsReward Success • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  24. Partner Compensation SystemsChanges in Past 4 years Per 2010 Rosenberg MAP Survey • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  25. Best Practices Vs. Comp System • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  26. Compensation Committee Remainder of Webinar • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  27. Compensation Committee:“The Devil is in the Details” • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  28. Compensation Committee:Why Firms Use It Aligns the firm’s vision with how partners are evaluated and compensated. • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  29. The Convergence of 3 Aspects of Management MVP Partner Evaluation Strategic Planning and Core Values Partner Compensation • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  30. The Convergence of 3 Aspects of Management MVP Strategic Planning and Core Values Partner Evaluation Partner Compensation • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  31. Compensation Committee:Why Firms Use It Aligns the firm’s vision with how partners are evaluated and compensated. Formulas have big flaws. Balances rewards between production and intangibles. Too many partners for each to know what others contribute. MP doesn’t want sole responsibility. Partners won’t give sole power to MP; MP doesn’t want it. • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  32. Comp Committee:Keys to Success MVP • IF THE PEOPLE BEING JUDGED DON’T TRUST THE JUDGES, THE SYSTEM WON’T WORK. PERIOD. • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  33. Comp Committee:Keys to Success 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 CLEAR • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  34. Comp Committee:Keys to Success 3. A SINCERE EFFORT MUST BE MADE BY THE JUDGES TO COLLECT ALL PERTINENT INFORMATION AND STUDY IT. DON’T ALLOCATE COMPENSATION BASED ON REPUTATION, INTUITION, PERCEPTION, ETC. • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  35. Comp Committee:Keys to Success MVP 4. JUDGMENTS THAT ARE EXPLAINED AND COMMUNICATED ARE MORE READILY ACCEPTED THAN THOSE THAT ARE NOT. • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  36. Make-Up of Committee Small MP is permanent member Voted or appointed All members must be credible Not everyone gets a turn Comp Comm relation to Exec Comm • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  37. If your firm has a Comp Committee AND an Exec Committee: Are they exactly the same people? Are each composed of totally different people? Not the same people, but there IS some overlap. If (b) or (c), why aren’t the two committees the same people? Please key in your responses to me.

  38. Comp Committee: Important Decisions • Determining the # of CC members • Length of a CC member’s term? • Should the CC be the same as or different from the EC? • Performance criteria • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  39. Performance Criteria MVP • Leadership • People skills and development • Practice development • Client service • Client transition • Traditional production measures • Teamwork • Good citizenship • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  40. Leadership Performance in management positions Impact performance of others Stretches people’s abilities Identifies challenges; resolve quickly Cheerleader • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  41. People Skills & Development Excellence at managing all relationships Staff &younger partners advance under his/her tutelage Inspires people to achieve • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  42. Practice Development Emphasis is on how your team performs at bringing in business Moves clients upscale in sophistication, profitability and usage of multiple services • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  43. Client Transition Retention “If you leave, will your clients stay?” Successfully moved clients to other partners Transfer of expertise • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  44. Teamwork Develops a strong team beneath them Ensures that clients have multiple “touch points” within the firm Shares the work among business units “If a partner manages a big client or a big book of business ALONE, he/she would be shot.” • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  45. Good Citizenship Is a good partner Treats people respectfully Lives/breathes the firm’s core values every day Sets an example of following the policies • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  46. What else does your Comp Committee look at to make their income allocations? Please key in your responses to me now

  47. Comp Committee Operation: Important Decisions 5. How CC communicates with each partner 6. How CC actually allocates the $$$: • MP recommends + group “tweaks” • CC does a paper and pencil exercise, then tweaks • Some sort of ranking/performance grid • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  48. Important Comp Committee Decisions7. Incentive Bonus or Final Year-End Distribution? INCENTIVE BONUS • Separate criteria from base • Base is a “salary” FINAL DISTRIBUTION • Same or similar criteria as the base • Base is really a draw on a final number • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  49. Comp Committee Operation: Important Decisions 8. Use non-binding paper/pencil exercise? 9. What data will the committee review? • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

  50. Data Reviewed by Committee • Partner evaluations • Self-evaluations • Upward evaluation by the staff • Achievement of goals • Production statistics • Input from MP, PICs, dept. heads • Paper and pencil (non-binding) • THE • ROSENBERG ASSOCIATES LTD. • www.rosenbergassoc.com

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