“Compensation is one tool, not the tool, to change behaviors and outcomes.”
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Gear Up for Growth
With Jean Caragher
For CPA Trendlines
Kristen Rampe, managing partner of Rosenberg Associates, spotlights two key drivers for CPA firm success: accountability and simplicity in partner compensation systems.
Gear Up for Growth spotlights the best strategies for smart and efficient growth in today’s competitive landscape. More Gear Up for Growth every Friday here | More Capstone Conversations with Jean Caragher every Monday | More Jean Caragher here | Get her best-selling handbook, The 90-Day Marketing Plan for CPA Firms, here | More CPA Trendlines videos and podcasts here
Rampe shares insights from Rosenberg Associates’ recent report, “Partner Compensation: Why Accountability Matters,” revealing a strong correlation between accountability and firm profitability. According to the report, firms with high accountability systems reported an average income per partner of $617,000, compared to $411,000 in firms with low accountability.
“Accountability aligns partner efforts with the firm’s strategic goals,” Rampe explains. “By setting clear expectations and holding partners responsible for meeting them, firms can achieve remarkable results and ensure fair compensation.”
Rampe emphasized that accountability extends beyond traditional financial metrics to include goals such as staff development, leadership, and business development—all of which contribute to a well-rounded and thriving firm.
While partner compensation systems must reflect the diverse contributions of partners, Rampe cautions against creating overly complex structures. “Firms can honor the many different roles partners play without creating systems so intricate that they become unmanageable,” she notes.
She argues that simpler systems allow firms to focus on strategic objectives while avoiding administrative burdens. However, they should still incorporate performance metrics and adaptability to address changing business needs and partner expectations.
5 More Takeaways
- Compensation systems are central to motivating, incentivizing, and rewarding partners, directly impacting firm growth and success.
- Coaching, leadership development, and aligning goals with the firm’s vision are complementary strategies to drive partner performance.
- Younger professionals value systems that reward performance early and transparently rather than relying on traditional models tied to seniority or long-term buyouts.
- Firms must balance rewards for long-term contributions with fair compensation for newer, high-performing partners.
- Compensation for marketing and business development efforts can motivate but must be complemented by coaching and skill development.
More About Kristen Rampe
Kristen Rampe is a managing partner of Rosenberg Associates. She specializes in helping CPA firms with partner compensation, partner agreements, buyouts, strategic planning, and leadership development. For the past three years, Accounting Today has named her one of the Top 100 Most Influential People in Accounting.
Transcript
(Transcripts are made available as soon as possible. They are not fully edited for grammar or spelling.)
Jean: Hello. Thank you for joining “Gear Up for Growth” powered by CPA Trendlines. I’m Jean Carragher, president of Capstone Marketing and your host. This episode is focused on compensation as a growth driver. Our guest is Kristen Rampe, managing partner of Rosenberg Associates. Kristen specializes in helping CPA firms with partner compensation, partner agreements, buyouts, strategic planning, and leadership development. She has been named one of the top 100 most influential people in accounting by “Accounting Today” for the past 3 years. Kristen, welcome to “Gear Up for Growth.”
Kristen: Thanks, Jean. It’s a pleasure to be here.
Jean: So we know that there are many components that contribute to CPA firm growth, right? We need to keep our clients, we need to find new clients. Sometimes we need to fire clients. We need to recruit and retain the people who are gonna do the work, the use of technology, leadership, and we could go on and on, right? And we need to compensate these partners and others in these areas. So start us off with your overall view of the complexities of compensation.
Kristen: Yes. Well, complexities is right. Compensation is really a topic that has so many nuances and so many different approaches. There are ways that many firms have been able to utilize, I would say, like, more simple compensation systems over time. And sometimes those work great even for a long period of time. But many firms, you know, as you mentioned, they get to a point where they realize, “Gosh, there’s really a lot of important functions happening at our firm, and it would be valuable to us to motivate, incentivize, and reward our partners for doing the many things that we need them to do to have a really well run successful CPA firm.” And it’s when we open that door and realize that that the complexity tries to sneak in.
I would say though, that there are ways to honor the many different contributions that partners need to make to firms while keeping your system more simple. I wouldn’t say totally simple because it is hard when you have a lot of nuances, but there are ways that firms can do it, where they’re, you know, able to take a holistic look at performance and set goals properly, including goals for growth and such that they’re looking at all that but they can still have some guidelines that make it not too complicated, such that people don’t wanna get into it.
Jean: Right. Now, Rosenberg Associates recently released a special report called
“Partner Compensation, Why Accountability Matters.” And folks, you can download that from the Rosenberg Associates website. Tell us about the role accountability plays when determining partner compensation. You know, we know accountability has always been a big word, right, in the accounting profession. So tell us about how that relates to compensation.
Kristen: So the research that we did was we wanted to understand what drives individual partner contentment, if you will, with their compensation systems. And by compensation system we’re referring to, like, how the income gets allocated, right? What are the many and varied or few components that a firm uses to allocate the income to the owners? And this survey was certainly done through the lens of, you know, a more traditionally modeled CPA firm such that it’s the owners that are also doing work in the firm. Even if, you know, possibly there’s a managing partner or other executive levels that don’t serve clients as much as other line partners, but it was with that owner operator mindset. And what we found was that of the partners that were, like, most content with how their systems were functioning, one of the most highly correlated attributes was that they had an element of accountability that was part of their comp system.
So as opposed to, I guess on the extreme end, a very simple system would be you’ve got four partners and they all share compensation equally. And that can work in some certain environments. I’ve seen it work and it’s great. I am a huge fan, you know, if it ain’t broke, don’t fix it, right? But often at some point that doesn’t work because, you know, those four sharing it equally realize, “Well, you know, gosh, actually this one person maybe isn’t appropriately doing as much work because they don’t wish to and we’re okay with it,” so then equally doesn’t matter. And it’s hard to have an element of accountability if you all have agreed to share your compensation equally. Now again, sometimes it can work. But that was one of the biggest correlating factors that we found.
But I also want to add another piece of that was the correlation with profitability and accountability. And that was really interesting to see come out in the results. So when we looked at firms that utilized an element of partner accountability, which I would say is, you know, defining having some goals and holding people accountable for achieving those goals, when firms that were doing that, their accountability was notably higher than those who reported little accountability. And just to give you some numbers in our report, like, firms with high accountability, income per partner, $617,000, firms with low accountability, $411,000. So you do the math on that, seems to have a strong correlation that I would pay attention to.
Jean: Right. Absolutely. Now that takes strong leadership to instill that sense of accountability. Do you see managing partners struggle more with that or are you surprised that more firms don’t have that element of accountability related to…? For me, if accountability is related to compensation, it’s related to everything going on in that firm, that they’ve got strong leadership and they’ve set goals in all different ways, strategically in marketing and everything. Do you see more firms having a greater sense of accountability these days?
Kristen: I do. I think firms’ awareness of the need to manage their firm like a business and an organization rather than just, “Hey, I’m a service provider, I do my things for my clients and over there is another service provider that does their thing for their clients.” But really looking at it saying, “Hey, if we’re gonna be an organization, what do we as an organization need to be doing, which it’s more than client service and billings and collections.” Those things are absolutely bottom line important, continually, right? It doesn’t mean that we suddenly don’t do client service billing and collections because without them, we don’t have a firm. But it’s recognizing that if you’ve got someone who’s extraordinarily talented in people development, you know, and is really good at bringing along the next generation and training them and helping them become the next leader, and teaching them how to sell work, that that is also valuable.
And it’s common for that work to take time, believe it or not. And then that time isn’t always as directly correlated with some of those financial metrics, right? And so then the financial metrics come down a little because they’re spending so much time over there. So for firms to recognize that all of those things matter and really treating a firm as an organization, I do see more firms looking at that. Not all. I mean, there’s certainly some amount of, “Hey, you know what, I just wanna show up and serve my clients,” and we as a group of 2, 3, 4, 10 partners agree that’s what we wanna do, great. You know, I’m really a big proponent of, you know, your firm’s gotta have its core values, right, it’s gotta have its mission. And if it’s a lifestyle practice or just like, “Hey, you know, we’ve gotten here and we’re good with where we are,” great, you know, you gotta achieve your goals, but you gotta set those goals and go achieve ’em and if you’re there, then you’re there. If you wanna get more, you’ve got stuff to do.
Jean: Exactly. You’ve gotta do things differently, right and make some changes. I thought another interesting piece of information in the study…Now, I don’t have the percentages in front of me, but I know you’ll know them, the percentages of partners who were happy, you know, or satisfied with how they were being compensated and their compensation system. But wasn’t it, like, nearly half or over half of them said that they were not likely to recommend their compensation system to other firms? So I thought that was interesting because they were happy, but they’re not gonna share it with anybody else.
Kristen: Yes. Well, and I don’t even think it’s a matter of not sharing. It’s just, you know, the question of like, would you say that the way you’re doing it is a great way that you would recommend, you know, to a peer in the industry, right? And so even though they’re satisfied, they might still see room for improvement. And I think there’s some amount of, that’s like the perpetual nature of compensation systems is, you know, we try to dial it in and get it so it feels pretty good. And it may be really good for a couple of years, and then something’s gonna change at your firm that needs to be addressed. In fact, I just had a client, I think it was at the end of ’23, we did a big revision to their system, which in the past was very much formulaic, you know, every partner could calculate at any point in time exactly how much they had earned in that year, just based on a couple of, you know, again, key metrics, but, you know, like billings, collections, and partner hours or something like that. So we did a big revision. We introduced some variable components, we introduced, you know, the need to perform in other areas like staff development. And for them, making that shift was a big change. And it really helped them to integrate some of those additional ideas into their new system.
Jean: Right. So of course, as a marketing consultant we’ve been working and training partners on business development and client service and all of these areas that they didn’t go to school for, or in fact, like they did not become CPAs to go out there and win business. So when you’re dealing with compensating partners for new business that they generate or for cross-selling or cross-serving services, how does that come into play? And is a boost in compensation in those marketing areas enough to motivate partners to actually do it?
Kristen: Yes. Great question. One thing that I like to tell people when it comes to comp systems is that compensation is one tool, not the tool to change behaviors and outcomes. For many people having a financial incentive or possibly a penalty, if you will, to do a thing that can be motivating. But for some people it’s almost an excuse, if you will, to not do it, right? Like, if we make it very formulaic and say, “Okay, well, if you do this, then you’ll get that,” someone for whom a particular action is very uncomfortable, like perhaps sales or, honestly, I think for CPAs it’s more the networking and the cold lead generation than the actual, like, closing of a deal.
But that piece of it is uncomfortable. And especially if that monetary reward isn’t super significant to them, they might say, “Okay, so if I go and do this really awful thing that I don’t wanna do like networking and calling up other, you know, companies in the industry that we’d like to have become our clients, I could make $20,000 more, or I could not and forgo that $20,000.” I might choose the not, right, because it’s uncomfortable. And so, to your point, Jean, you know, having someone on your team that can help coach people and develop these skills would be another tool that can help motivate that performance. So I do like compensation, sort of, lined up with other tools when something’s difficult, you know, and really needs attention,
Jean: And I think this is where communicating the firm vision and core values, like you were mentioning earlier, and a leader being able to provide the big picture of the firm and where the firm is headed and what’s necessary for the team to do to help them accomplish that is a critical item. And I know that’s being done in a lot of firms, but at the same time, you might ask firm leaders what are their core values and they could scratch their heads or they’re just saying something that might sound good because they feel like they need it. So that gets back in…this area just touches upon a lot of things with operating firm.
Kristen: Yeah, absolutely. And I do think, you know, in terms of the business development and origination, an area where many firms I think could use some improvement is a lot of them track something that they call book of business or something like that, right? And the challenge with that term is it does have some different definitions depending on who you’re talking to. And at a lot of firms, they’re tracking either who brought the work in to the firm, which I would say is more of an origination thing, right, like, “Hey, I knew these people, I know those people, they called me, whatever, you know?” So that’s my book of business is the work that I brought to the firm. Other firms call book of business the book that’s being managed or actively engaged with by a partner. So, you know, partner A brought it in, but partner B is the industry expert, so they’re the ones serving the client, so that would be on partner B’s book of business.
I think it’s very helpful because both are critical firm functions, you know, the business development piece, the bringing it in, the closing the deal, and also the client service to make sure you have some idea of who’s making those contributions to the firm. And they can be different, right? And in a well-run firm, I do believe, you know, partner A brings in that client, but it’s not best for them to serve it. Either they’re too busy or they aren’t the experts. Ideally they’re passing it to someone else. But to be able to acknowledge and reward, I think ideally both of those really important functions is important for a firm. And many firms don’t track both. They kind of track one or the other. And then they’re wondering, “Well, you know, how come we’re not transferring work, or how come this person’s making so much money, or how come nobody’s getting any reward for business origination,” you know? And so it can be challenging,
Jean: Right. And by transferring that client from partner A to partner B is also doing what’s best for that client and not what’s best for either of those individuals.
Kristen: Absolutely. In my vision, you ideally have a comp system that rewards partners for doing the right thing for the firm that should raise firm profits in total, which would be let’s put this client with the best fit partner for the firm and so you want that act to be rewarded, you know? And we talked a little bit about complexity earlier. We don’t wanna build a system that has, you know, an eight-page formula to, well, you can get credit for this, you can get credit for that, and credit for this, credit for that. We do need to be aware of all these things, but I think it can get really complex quickly. I had one client that they had a moderately high-level person, administrative person that half of their time, like a half an FTE was devoted to dealing with the partner comp formula, like, throughout the year and I was like, ooh, that feels…
Jean: That’s exciting. That’s a job I might have.
Kristen: It feels heavy. Not that it’s not still work, you know? If you had, sort of, a compensation command, I mean, those people have to review data, they have to look at all of the different performance factors and evaluate and make judgments and things, and that takes time too. But you’re able to, you know, deal with and handle the nuances better in that type of an arrangement.
Jean: So generationally, we’re seeing more baby boomers retiring and younger generations, you know, Z, Y, millennial, all of them, whatever letters they’re using. Are you seeing firms using different types of compensation that are more attractive to these younger generations? I know, for example, I believe it was BDO that formed an ESOP. What are you seeing out there?
Kristen: Well, there’s certainly a lot of different models available for that profit-sharing piece, if you will, you know? Whether it’s an ESOP or, you know, going with private equity to get, you know, more of that money down to younger people earlier. There’s definitely a lot of attraction around that. I also think, you know, in sort of the small to midsize space, there’s room for doing profit sharing without having to go through all the steps of developing an ESOP, whereby you are tying incentive comp bonuses, you know, and I guess we’re talking about, like, non-owners now or at least not, like, that top tier of equity partner, to their performance into the firm’s performance. And what I like about that, again, whichever mechanism you choose, is heightening professional’s awareness of what are the decisions that I need to make that are really going to do what’s best for the firm overall and increase the profits, because then I get a share of those profits, and that’s gonna feel good.
And it helps people make better decisions in what they’re doing day to day, whether it’s, you know, deciding to be more efficient on a project than in the past years, doing different things with staffing, finding ways to use AI to be more efficient in your work, you know, going out and getting more resources for your firm. So there are a lot of different plays that that can be done. I encourage firms to explore different mechanisms that they think are gonna work best for them to compensate and reward people at all levels for really building the firm’s success and growth.
Jean: Right. And that really helps with the firm’s recruiting and retention, right, because the old story is, you know, work here 25, 30 years and you’ll get a buyout, you’ll be compensated and you’ll have all this money, and they see the older, you know, baby boomer partners who have just been at their desks and billing those hours, Kristen, and making a very good living, but they have sacrificed parts of their lives in order to accomplish that. So if a firm has a different story of, you know, you’re not tied to your desk and you don’t need to work 3000 hours a year, and this is what you’re able to do, and you know what, maybe at the manager level or whatever it is, you’re talking about all these different options, you know, this is the potential of what you can earn. That’s a great story instead of work your brains out and get a sum at the end.
Kristen: And I do think it helps our profession overall to bolster the incomes of our younger professionals. So I think that’s really where we’re having a challenge in the industry right now is that, you know, we do expect people still to work pretty hard, you know, and put in some weeks that have some pretty long hours, and the work can be draining, right? And if we’re gonna ask that, you know, I think it’s fair to compensate people well for what they’re doing. And it may be, you know, what I was talking about, the partner incomes, $617,000 and $411,000, those are just kind of some example numbers, right? You know, well, what if it was $580,000 and $380,000, right, and we were kicking out a little more when rewarding performance, right? I’m not saying we just need to keep paying people a ton of money to kind of barely show up every day, but if they really are willing to commit to the profession and do the things we need them to do efficiently, let’s get some of that reward passed down to them.
Jean: Right. Now there’s an article on CPA Trendlines that you wrote called “Rewarding Partners for Seniority: Pros and Cons.” And this is about rewarding for seniority versus performance. And I know you could probably talk for 45 minutes on this one topic, but how do you work through something like that? Because I know that there are partners that have worked hard and continue to work hard throughout their careers and they’ve earned, you know, the compensation that they’re receiving. And then there are others who get to a point and feel like, you know, “I’ve worked really hard, but I’m not really quite ready to retire,” and they’re not at the same level. And then you might have a young, like, new partner who is like, “Go get ’em,” in their performance. This is a tricky situation.
Kristen: Absolutely. I think this too really comes down to the firm’s philosophy, it comes down to the owner’s philosophy of what do they want to do with that income? And I’ve seen practices all over the board. I do think for many firms, if you’ve got other than founders in the mix, right, they don’t really love seeing someone take home a whole ton of those profits who’s sort of showing up 15 hours a week, right? The optics aren’t great. Even if, like, to your point, Jean, they earned it, right, maybe they built that thing and hey, they’re gonna take their $1.3 million and you’re gonna take your $350,000, but good for you, you get your $350,000 because they did all this stuff to get their $1.3 million. And I don’t think there’s necessarily anything wrong with that. At the same time, I do think that once you get to like a full second generation, right, that’s where that becomes a little more difficult to choke down, right?
So you’ve got a second-generation partner who maybe just came up through work handed to them over time, which is not a problem. I mean, again, we need client servers, right? Do they get to take home $1.3 million doing the same job of someone else 5 years into being a partner is taking $250,000? You know, there’s a gap that I think needs to be analyzed of how big should the gap be? What’s fair? And in terms of seniority, you know, I think a lot of younger partners don’t love the idea of paying people just for the number of years they sat in a chair, right, or stood at a standing desk. But it’s more that we need to look at what is the long-term value that was created because to your point, right, like, they’ve done a lot, they’ve done a lot over time.
And a few ways to analyze that, sort of, historical value creation that I do believe should be rewarded, one is that origination piece we talked about earlier. I think for firms that don’t pay attention that say, like, “But who brought, you know, all the rest of the business to this firm,” or whatever that is? So that can be one component where you can look and say, “Yeah, but this partner, even though maybe they’re taking a little bit of a backseat on client service now, they brought in $3 million of our practice,” right? So that’s worthy of a reward while they’re still here. And the other is the long-term value creation in other areas, origination is just sort of an easy number figure to point to, you know, but were they the one that went out and brought in a couple of acquisitions? Did they really develop some of the talented partners that are there now, and what’s their reward for that? But really looking at the gap, you know, and how big feels right for the different contributions that were made. And I have another article on that too. So if somebody wants to check out the gap in comp and what are firms doing you could definitely check that out on our blog as well.
Jean: Right. Wonderful. So for our viewers and listeners who are interested in reworking their compensation system, what is the first step?
Kristen: I would say the first step is deciding why you would wanna do it, right? Like, what are the challenges and difficulties? Where’s the rub? Where are people feeling like, “Well, you know, I don’t feel like I’m getting rewarded for X, but I think that that is valuable to the firm.” So identifying what the trouble is is really the best first step. You know, sometimes clients come to us and, like, they’re already using a compensation committee, which, you know, for a mid and large-size firm is generally kind of the gold standard, but maybe some of the mechanisms that the comp committee using or some of the performance factors that they’re considering are outdated or not in line with what the firm needs to be doing.
And so then thinking about like, “What do we need to maybe tweak in that type of a situation?” And others are coming, I would say more from a blank slate where they’ve maybe been just doing a thing that they picked when they first formed, or a thing that’s been happening for 30 years and same thing, you know, something’s not working and it may be a total overhaul or it may be a tweak. So identifying the problem is the best first step because then you can solve the problem.
Jean: Right. So if a firm is in the situation where they’ve been doing that thing, you know, for 30 years, like you were just saying, and they’re doing some sort of overhaul, what’s the average amount of time that that normally takes to figure out what that new system is and to get that, you know, up and rolling?
Kristen: There’s definitely two different timeframes there. One, to figure out what the new one should be. You know, I think that can be tackled soup to nuts in a quarter, right? Like there, there’s gotta be some investigation of, “Well, what have we been doing, you know, let’s talk to the partners, what do we think we need to be rewarding, let’s, you know, put some stuff on the wall and see what we think of it, and come up with that redesign.” In some ways, that’s sort of the easy part. I’m not saying that’s easy. I mean, getting buy-in on changes is difficult, modeling out what it looks like is difficult. But the transition or phasing in of a new system is really where the length of time is longer because, you know, you have to pick what year you’re gonna start it. Ideally, you figured out what it’s gonna be in advance of the beginning of that year or very early in that fiscal or calendar year.
And then that implementation, I would say, you know, it just kind of takes place over the course of a year because you’re getting in, you know, these new components and maybe you’re talking with people more about their goals and you’re analyzing their productivity differently and then definitely a big chunk of work whenever that year end is to do that first allocation. And usually there’s some refinement after that first year, right? Like, you’ve created a plan, you did your best to implement that plan, there’ll be some things that you realize, “Hmm, we need to do, you know, small tweaks,” right? Like, “Well, I think we need to add this, or we need to consider that, or we need to wipe this out.” So some tweaks. And then I think after that, in that second year, it’s a little more well-refined and probably by the third year you’re really sort of rolling along in your new procedures that you’ve established.
And then also, not to scare people, but I do believe a well-run comp system needs to be looked at regularly, you know, and saying, “Are we targeting the right goals for our company with the way that we’re allocating our income?” So it’s not sort of a set it and forget it. Although, you know, like I said, I know some firms that do have the 30-year-old set it and forget it and when they step back and look at how their formula usually has cranked out these numbers, even if perhaps there are performance factors that are not calculated into the formula, they feel like the numbers still represent the appropriate allocation. For some firms that works. I think for a lot of firms, again, you’ll get to some point where you’re like, “Okay, but, you know, now this person is coasting and still getting a ton of money compared to someone else who’s really working hard and maybe they’re the same years of experience and getting less because the way our formula works, it doesn’t reward the things that they’re doing.” So always gotta be paying attention to your comp system.
Jean: Right. Oh, gosh. So my last question is a bonus question.
Kristen: Okay. I’m ready.
Jean: Okay? What is the most fun part about being a mother of twins?
Kristen: Oh, gosh. Just the high volume of energy in my house at all times. I guess for the reference of the viewers, I’ve got two 15-year-old boys running around my house, so there’s just something going on all the time. And luckily I enjoy cooking because the amount of calorie input needed is really high. So I enjoy doing that most days. And then there’s some days where I’m just, “I’m done, and you eat the leftovers.” But I love the energy of two young, energetic boys running around my house.
Jean: That’s fantastic. I’ve been speaking with Kristin Rampe, managing partner of Rosenberg Associates. Thank you, Kristen, for your time today.
Kristen: Thank you, Jean. It’s a pleasure to be here.
Jean: And thank you for tuning in to “Gear Up for Growth.” Be sure to check us out next time when we focus on another topic crucial for accounting firms aiming for smart growth in today’s competitive marketplace. I’ll see you then.