Plus 5 ways to make them more sophisticated.
By Marc Rosenberg
Partner Comp: Art & Science
Compensation formulas are the most common system used by CPA firms to allocate partner income. Indeed, many small firms are not even aware that there are alternative systems available, and they’re puzzled as to why a firm would not want to use a formula.
MORE ON PARTNER COMPENSATION FOR PRO MEMBERS: 3 Subjective Compensation Systems | 11 Points in Designing a Partner Comp System | 3 Tiers of Compensation | Partner Compensation 101| What Partners Earn and How They Earn It | Partner Compensation: An Art, Not a Science | Why Most Partner Comp Systems Are Performance-Based
Compensation formulas are most heavily used by small firms, especially those with fewer than five partners. Since over 90 percent of all CPA firms have fewer than five partners, formulas are the most common system. But once firms hit the five-partner mark, they find that other systems, mainly the subjective systems described in the previous chapter, are preferable. This will be explained later in this post.
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