Performance Is Everything: The Why, What, and How of Designing Compensation Plans

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.

Table of Contents:
Preface ix 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

About the Author :
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.