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More About This Title Performance Is Everything: The Why, What, and Howof Designing Compensation Plans
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Compensation is the largest expense that a firm incurs. And yet, few firms really manage it well. The trick is realizing it is more complex than just splitting the pie.
The crucial issues of compensation and performance are inextricably linked. In this important resource, experts August Aquila and Coral Rice offer a unique perspective on how you can align your compensation and performance management plans in order to boost performance, maximize profits, and keep both your staff and clients happy.
This companion to Aquila and Rice’s successful AICPA publication, Compensation as a Strategic Asset, will pick up where that guide left off, offering readers the “Why, What, and How” for compensation plans filtered through the lens of performance management.
The authors convey, in the simplest and clearest terms, how firms can improve overall firm performance by engaging in the following activities:
- Develop a compelling vision
- Develop a strategy for what you want to accomplish
- Have the right systems in place to help achieve the strategy
- Align individual goals with firm and departmental goals
- Create an effective performance review system
- Monitor performance monthly and quarterly for trends
- Provide higher performers with more rewards than average performers
Ultimately, this guide is based on what other firms are doing, and let's you know why it’s working or why it’s not. By guiding you through a process and providing you with the tools to design a partner and staff compensation plan, Performance Is Everything will help you develop the plan that works for your firm.
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August J Aquila, an internationally known consultant, speaker, and author, has held leading positions in the accounting profession for more than 25 years. He currently heads AQUILA Global Advisors, LLC, a full-service consulting firm to accounting and other professional services firms.
Coral L. Rice is one of the accounting profession’s top consultants and executive coaches in the areas of organizational development, compensation, and learning. She serves as a global senior consultant in FranklinCovery’s 4 Disciplines of Execution practice and has served both Fortune 100 and smaller clients in a variety of consulting roles.
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Acknowledgments xi
About the Authors xiii
Part 1: Why You Need to Reward People Differently 1
Chapter 1: Workforce Trends in the Twenty-First Century 3
Rapid Pace of Technological Change 4
Shifting Demographic Patterns 4
Job Sharing 5
Permanent Part-Time Positions at the Owner and Employee Levels 6
Globalization of the Workforce 6
Employers Demanding Higher Skills 7
Lack of Clearly Defined and Stable Jobs 8
Flattening of Organizations 8
Women in Leadership Roles 8
“Around-the-Clock” Economy (24/7) 9
Trust 9
Final Thoughts 10
Chapter 2: Superior Performance Comes From Alignment 11
Performance Variables 12
The 7S Model 12
Other Models 15
The Nine Performance Variables 15
Organization Level 16
Process Level 18
Performer Level 20
Final Thoughts 24
Chapter 3: Building a Compelling Vision 25
A Vision Is More Than a Simple Statement 26
How to Ensure Owners Connect to the Vision 26
When to Involve Owners in Creating the Vision 27
What Should a Compelling Vision Contain? 28
The How To Is as Important as the Vision 29
Journey, Milestones, and Measuring Progress 30
What’s in it for Me? 30
Final Thoughts 30
Chapter 4: Link People Performance to Strategy 31
What Is Strategy? 31
Where to Start? 32
Case Study 33
Strategy Execution as a Core Competency 36
Final Thoughts 36
Chapter 5: Your Role as the Leader 37
Even Managing Owners Need Assistance 37
What Successful Managing Owners Do—The Leadership Model 38
Setting Direction 39
Gaining Commitment 40
Execution 42
Personal Example 44
Final Thoughts 46
Chapter 6: Why You Need to Reward Different People Differently 49
Financial Reasons 50
Performance-Compensation Gap 50
Need to Reward the Performers 51
Align Monetary and Nonmonetary Rewards With Position Level 52
Operational Reasons 53
Evolving Business Models 53
Rapidly Changing Competitive Landscape 55
Generational Reasons 55
Work-Life Balance 55
Generational Differences 56
Today’s Compensation Plan 57
Written Win-Win Agreements 57
Customized Criteria and Goals 58
Focus on Current Production and Future Capacity 58
Reward Performance, Not Entitlement 59
Include At-Risk Compensation 59
Ensure Fairness 59
Create a New Culture 60
Exercise Courage 60
Final Thoughts 60
Part 2: What You Need to Reward 61
Chapter 7: Make It Happen Through Performance Management 63
Survey Results 64
Owners and Performance Management Systems 68
Job Descriptions 69
Final Thoughts 69
Chapter 8: Selecting the Right Performance Measures 71
Vision, Strategy, and Objectives 71
The Role of Performance Measures in Driving Behavior 71
Why Choose Performance Measures That Are Linked to Firm Objectives 72
How to Choose Performance Measures That Are Linked to Firm Objectives 73
Potential Dangers When Using Performance Measures 74
Using Scorecards to Categorize and Clarify Performance Measures 75
Firm Scorecard 75
Department Scorecard 76
Individual Scorecard 77
Categories of Objectives 77
Financial Measures 78
Client Service Measures 78
Internal Systems and Business Process Measures 79
Employee Growth and Learning Measures 81
Business Development Measures 82
Final Thoughts 83
Chapter 9: Overcome the Challenges in Creating a Compensation Plan 85
Best Practices in Designing a Compensation System 86
Entitlement Performance Continuum 87
Evaluate Current Plan 87
Getting Started 88
Six Major Obstacles and How to Avoid Them 90
Final Thoughts 92
Chapter 10: Choosing the Right Elements: Build a Compensation Plan 93
Base Pay 93
Compensation for the New Owner 94
How Do You Determine the Market Value (“Street Value”) of Your Owners? 96
Developing Pay Ranges 97
Developing Owner Pay Ranges 97
Bonus 98
Bonus Compensation Criteria 99
Types of Bonus Compensation 100
Combining Tangible and Intangible Compensation 100
Administering the Plan 101
Performance Management 101
Final Thoughts 102
Part 3: How to Reward Performance 109
Chapter 11: How to Manage Performance Effectively 111
What Is Performance Management? 111
Ensure Performance Expectations Are Clear From the Beginning 112
Create a Culture Where Giving and Receiving Feedback Is the Norm 112
The Role of the Johari Window in Performance Management 113
Giving Feedback 118
Performance Evaluations 119
Final Thoughts 120
Chapter 12: Owners Need to Be Evaluated Too 133
Factors Determining the Owner’s Value 133
Owner Evaluation 134
Only Performance Is Reality 138
Align Goals and Rewards to Strategic Initiatives 139
Building a Culture of Accountability—“Accountability is Good, But Not for Me” 139
Setting Goals 141
What Support Will Owners Need? 142
Start With the Firm’s Strategic Plan 142
Individual Owner Performance Plan 142
Areas of Performance Evaluation 144
Goal Setting 144
Steps in the Evaluation Process 145
Changes to the Owner Performance Plan 145
Final Thoughts 145
Chapter 13: Even Managing Owners Need Feedback 151
The View From the Top 151
Other Criteria 153
Final Thoughts 153
Chapter 14: How to Compile and Assimilate a Bonus Performance Plan 161
The Right Performance Bonus Plan 161
Sample Performance Bonus Document 162
Owner Performance Bonus Plans 163
Case Study—Compensation System in a Midsized Firm 163
Case Study—Large Firm 165
Managing Owner and Executive Committee 165
Line Owners 166
Managers 166
Discretionary Pool 167
Final Thoughts 167
Part 4: Where Do You Go From Here? 179
Chapter 15: What Will You Do Tomorrow? 181
Appendix: 2011–2012 Performance Management and Compensation Survey 183
