I have a view that a lot of partners in this industry are overpaid senior accountants. They are doing the work of a senior accountant but getting paid substantially more.
There are many partners who are partners because of retention reasons rather than good business reasons. In today’s money you can employ a senior accountant for $120K (or thereabouts) to do the work of most partners.
If I am paying someone $300K – $500K (with dividend) then I would expect them to operate differently to a senior accountant who does the ‘delivery’ side of the work. As a minimum I would be expecting partners to bring in new business from existing and future clients.
High contribution partners should be doing just 3 things:
- High end work for a low percentage of time – advisory work at ‘value based fees’ high margins
- Nurturing existing clients – increasing the average fee per client with additional services sold – priced on value not time.
- Leadership – driving performance of the firm and making sales to new clients
So how much should you pay them?
To start the discussion you need to separate employee vs owner. There is no right or wrong answer (to how much) however I think a rule of thumb needs to be “what would it cost me to replace this person with another employee”?
By nature of the answer it means that there needs to be differing salary levels among partners.
I am talking about rewarding people with a package based on their contribution to the business. It is farcical to think that all employees of a business (partner group) should be paid the same amount if they are contributing in different ways.
As an example, if one partner is bringing in $300K worth of new clients per year and doing $200K of personal chargeable work then they are far more valuable than someone doing $500K of personal chargeable work and not bringing in any new business.
To get it close to right (and the number will never be right) there are 3 considerations to the total salary package of an employee / partner.
- Salary earnings – an amount that it would cost to replace you as an employee
- Bonus earnings – an amount based on ‘above salary’ contribution – it must promote over achievement
- Equity earnings – an amount based on your equity percentage and your dividend policy
Excluding equity, as an overall employee package, you should be thinking about “on target earnings” – OTE.