Download - “Partnership Structure – Management Dynamics of Firms that Grow from 2 Partners to 4 and Bigger”
“Partnership Structure – Management Dynamics of Firms that Grow from 2
Partners to 4 and Bigger”
CEOKoltin Consulting
Group, Inc.Chicago, Illinois
LIFE CYCLE 1
Revenue Up to $2 million
Governance Committee, if at all!
# of Partners 1 – 3
Biggest Worry
Making payroll!
Strategy “Anyone who can pay our bills is a worthy client.”
LIFE CYCLE 2
Revenue $2-$5 million
Governance Our compensation formula IS our governance.
# of Partners 2 – 6
Biggest Worry How do I find time to work ON the business (vs. IN the business)?
Strategy Differentiation – “With us you’ll get a ‘hands-on’ working partner vs. the ‘bait and switch’ that larger firms try to use.”
LIFE CYCLE 3
Revenue $5-$10 million
Governance Managing partner elected (more administration than real management). Also, management is not valued as highly as client service or new business.
# of Partners 4 – 12
Biggest Worry Do we go out and invest in professional management or keep the partners doing “non-billable” things? How do we recruit, retain and grow younger talent?
Strategy “Let’s start to specialize and really focus on industry/functional niches.”
LIFE CYCLE 4
Revenue $10-$30 million
Governance Managing Partner position gaining traction and trying to develop A&A and Tax Department leadership.
# of Partners 8 – 40 (two-tiered partnerships more prevalent)
Biggest Worry Range of efforts results in compensation beginning to spread wider amongst the partner group/retirement issues/change to compensation system.
Strategy “Should we stay independent or merge up (or merge with an equal)?
LIFE CYCLE 5
Revenue $30 million+
Governance True CEO and high-level, professional management.
# of Partners Number based on revenue per partner. Typically between $1-$2 million revenue per partner.
Biggest Worry How do we create: real depth and industry/service-line specialization, one-firm concept, and integrate mergers?
Strategy “Should we expand geographically, be more aggressive in mergers and recruit lateral partners (free agents)?
Door #1
Ground Hog Day
No Pain – No Gain
Door #2
Major Reconstuctive
Surgery
Will look better, but at
what cost?
Door #3
Let’s Merge Up into Someone
Else’s Playbook
Interestingly, the results
from doors 2 & 3 are the same
Future Survival of the Firm
Future Survival of the Firm
Relationship v.
Service-based
Partner
Relationship v.
Service-based
Partner Leadership Talent
Leadership Talent
First v.
Multi-Generation
Firm
First v.
Multi-Generation
Firm
Rainmaker “Lite”
Rainmaker “Lite”Size
of Firm
Size of
Firm
Cruisers v.
Dynamos
Cruisers v.
Dynamos
Types of Services (Type 1 v. Type 2)
Types of Services (Type 1 v. Type 2)
Market Share/Desire
to Expand Geographicall
y
Market Share/Desire
to Expand Geographicall
y
Source: Journal of Accountancy, April 2007
The Big Four and the “Middle The Big Four and the “Middle Market”Market”
Number of Services Used◦ 1 service◦ 2 services◦ 3 services◦ 4 services◦ 5 services
Probable Retention Rate◦ 12%◦ 24%◦ 63%◦ 81%◦ 98%
Mandatory shift – from “renting” clients to actually “owning” them.
Competitive Spirit Clutter Cohesiveness Candidness Crystal-Clear Vision Curious Contagious Enthusiasm Crazy! Change Agent Communication
1) What professional characteristics would you want to see in the next MP?
2) What personal characteristics would you want to see in the next MP?
3) As you reflect on the biggest challenges facing the firm over the next 5 years, what are they?
4) How should the MP’s performance be measured?
5) Do you envision the structure of the MP position potentially changing in any way?
6) Would this person be interested, have the backing of the other partners and give up their workload to make this position successful?
Set and influence the strategic vision/ direction of the firm
Lead the firm’s 1- and 5-year targets for growth and profitability
Create an environment that positions firm as the “Employer of Choice Firm” throughout the Region
Help coach and monitor the PICs’ performance in a manner consistent with the “One Firm” concept
Lead the Executive Committee and provide clarity and accountability for their roles
Provide counsel and cohesion to the firm’s management team
Rally the partners to greater performance and provide for a culture of “connectivity”
Be a leader in the communities that the firm services
Five-year strategic plan “Heavy lifting” – major issues effecting firm Mergers and acquisitions Hiring of lateral partners to the firm Litigation and business risk Advisor to the Managing Partner Ideas for new product and service lines Ambassador to carry the “Firm” message to
other partners and associates
Tax Department Leader – Job Description
1) Empowered with overall responsibility to manage growth, profitability and overall resources of the Tax Department.
2) Recruitment of new tax talent to the firm.3) Mentoring and development of existing tax staff and partners.4) Responsible for leading new product/service department ideas for the
Tax Department.5) Oversight of tax training and technical issues as they relate to
members of the Tax Department.6) Oversight of utilization scheduling and realization of Tax Department
members.7) Establishment of tax members’ billing rates, as well as helping
establish fees on larger tax engagements.8) Meets monthly (or quarterly) with tax partners and managers to coach
and counsel them on individual performance.9) Responsible for overall client satisfaction (both internal and external
clients of the firm).10) Helps promote the cross selling of tax services firm-wide, and also
promotes cross selling of non-tax services within the Tax Department.
Leadership Management Administration
CEO/
COO
$$$ $$ $
Executive
Committee
$$$ $$ $
Dept.
Heads/PICs
$$$ $$ $
What value do you place on each of these areas?
How hard do you want to “push the gas pedal?”
What kind of management talent do you really have?
New business Billable time Realization WIP/AR Client satisfaction Recruiting, retention &
staff development High impact ideas M&A candidates
Managed book of business
Succession planning Partner peer ratings Professional growth Administrative
compliance Technical quality Team & dept. leadership Community involvement
Unified Firm* Strategy/Vision
Individual Partner Goals
Firm Governance/Accountability
Performance-Based Partner Compensation
*Includes Department, Office and Industry Team Goals
CLIENT
Originating Partner
(Aggressive Alvin)
Relationship Partner
(Loveable Larry)
Service Partner(Billable
Bob)
“Average partner compensation will increase, but for the average partner, it will probably stay the same.”
Daryl Ritchie, CEO of Meyers Norris Penny LLP
What percentage of your partner compensation dollars are guaranteed (salary) vs. “at risk” (bonus)?
Do you have an Open, Closed or Quasi-Closed partner compensation system?
What, if any, portion of your partner compensation program is strictly formula based?
*Arguably, 90% of firms have no formula
Briefly describe your deferred compensation program:(selected answers)
2.5 X highest 5 of 7 years paid out over 10 years, all unfunded. Multiple of a percentage of total comp, payable over 10 years. 20% of average of 3 highest of the last 6 years compensation, paid for a
17-year period. We value the Firm at 1x annual volume. Partners accumulate shares based
on the increase of Firm value. These shares are redeemed when the partner retires. The retiring partner also receives capital gain treatment.
Vesting schedule over 30 years. (20 as a partner and 30 as an employee/partner.) Amount is determined based on the highest 3 of previous 5 year’s compensation times 2. 90% is paid out over 9 years, with the remaining 10% over life certain.
2.5 times the average of the last 5 years of comp, not to exceed $1.1M, paid over 10 years.
Who actually determines partner compensation within your Firm?
Partner Compensatio
n
Partner Compensatio
n
CEO/MP
Executive Committee/
Board of Directors
Management Committee/
RPIC/PIC/OMP
1st vs. 2nd Gen Firm
1st vs. 2nd Gen Firm
Single vs. Multi-Office
Single vs. Multi-Office
Organic Growth
Strategy vs. Merger
Strategy
Organic Growth
Strategy vs. Merger
Strategy
Traditional vs. Non-Traditional Service Practice
Traditional vs. Non-Traditional Service Practice
One tier ◦ equity only
Two tiers ◦ equity, income
Three tiers ◦ equity, limited equity, income
Four tiers ◦ equity, limited equity, income, principal
Five tiers ◦ equity, limited equity, income, principal, retired
Six tiers ◦ equity, limited equity, income, principal, retired, contract
Seven tiers ◦ equity, limited equity, income, principal, retired, contract,
special*
*has not ‘officially’ retired but, based on performance, one would think they ought to!
Guaranteed vs. non-guaranteed compensation?
Greater Compensation? Book of Business? Voting Rights? Capital Contribution? Deferred Compensation/Retirement Benefits? More Accountability? Limited Liability - Indemnification from
Lawsuits?
Briefly describe the primary differences in how you compensate income vs. equity partners:
To Contact Allan:625 N. Michigan Avenue, Suite 2100
Chicago, IL 60611312.245.1930 (phone) 312.245.1935 (fax)