How One Firm Transformed Its Partner Compensation Model

A recent article posted by the Journal of Accountancy relates lessons learned in a podcast hosted by Jeff Drew. According to the intro to the podcast, “incentivize the behaviors you want.” That was the theory behind the US firm GRF CPAs & Advisors' decision to change its partner compensation model several years ago. Firm leaders knew that if they wanted their partners to operate as a cohesive team, they needed to stop paying partners in ways that drove individualistic behaviors.

More than five years later, GRF President and Managing Partner Jackie Cardello, CPA, said that, while the process was a lot of work, the results "absolutely" have been worth it. “We were trying to incentivize certain behaviors, and what we were seeing was we weren't operating as a cohesive team, as a one firm, under the one-firm concept. And there were individual behaviors, very individualized practices, almost a silo effect. We had started with what we call a purely formulaic, or some people like to call it, eat-what-you-kill model, which is based purely on a book of business. That tends to drive very selfish behaviors, and we wanted to change that.”

Cardello noted that her firm went to a goals-based model and there is a part of the compensation that is based on metrics. “First of all, we started giving partners goals, and we started evaluating them and holding them accountable. We didn't have goals before. It was just inherently chase business, build your book – we added two other layers of goals other than just the financial metrics. We added team development and succession planning and then also the firm's strategic goals… for example either strategic or the team development and succession planning, and we actually gave partners goals to transfer a certain amount of business. They would get credit for bringing business in on the business development side, but then we also credit them if they bring it in and pass it off to another partner in their department or even another department.”

Cardello was surprised that, once the partners went through the first season under this comp model, there was an appreciation for it. “There was acceptance as they went through the goal-creating process and then the evaluation process. We were surprised at how little complaining we had.”

She added that what was less surprising was that “over the years, we've seen it work. It is working. It is driving the behaviors that we want, and it is de-incentivizing the behaviors that we don't want, and it has changed the partner behavior so that we are acting as one firm.”

As she pointed out, “everybody has different goals and incentives based on what they're good at, and I was thrilled to be part of a partnership that runs that way because at the end of the day, everybody brings something else to the table. Somebody could be a phenomenal people developer, but a terrible business developer, or they could be a technical person, but not so good on the people side. But if you're going to have a successful partnership, you need all of those people at the table.

“You need diversity of thought, of skillset, and so one way to hold everybody accountable and make sure that you're pulling the best out of them is to have a system like this. I'm lucky that I came into it as this was the only goal system that I knew. Even since I joined back in 2020, it's had tweaks over the years, but I think it's something that we're proud of and we love sharing with other firms because it's a change that's very tangible and not as hard of a leap as they might think it is, and it has tremendous benefits for a firm.”

Cardello also said that the process has “actually driven the bottom line. We've experienced incredible growth. When I took on the role as managing partner, I want to say we're about a $22 million, $23 million firm moving toward mid-20s. This year, we're projected to do upwards of close to $50 million. Initially, we weren't sure. We thought we'd have some down years and we've also increased our investments and personnel and salaries across the board, staff-level and technology.”

She added that, “we've been working very hard and are fortunate to have a comp model that is driving the right behaviors, and it also attracts other individuals from other firms who are looking to find a new home to our firm because they like the way our comp model works.”

For much more about this project, visit How one firm transformed its partner compensation model - Journal of Accountancy.