2254l378 pcps hc reward compensation incentives

8/3/2019 2254L378 PCPS HC Reward Compensation Incentives

1/9

1

Reward & Compensation & Incentives:Pay-for-Performance

Human Capital Center Toolbox Series


2/9

Reward & Compensation & Incentives: Pay-for-Performance 1

Table of Contents

1Set the Firms Mission, Vision and Core Values

1Create the Firms Strategic Plan

1Develop and Communicate

a Firm-Wide Compensation Philosophy

2Determine Desired Outcomes

o a New Compensation System

4Design New Compensation Systems/Plans

5Develop Win-Win Agreements

7Develop and Implement a Transition Plan

8Manage Perormance

8Review the Compensation System/Plan Annually

10Other Rewards and Recognition

What is the PCPS Human Capital Center Toolbox Series?

The Toolbox Series is designed to highlight the learning and tools available

in the Human Capital Center (HCC), including templates, action plans,

checklists and more. The HCC serves PCPS members by ocusing on stang

best practices and providing the resources to master and implement those

recommendations. Contributions to the Toolbox Series were made by the

AICPAs Specialized Communities, including the Personal Financial Planning,

Inormation Technology, Forensic and Valuation Services and PCPS

sections. Visit the 11 segments o the Human Capital Center at

pcps.aicpa.org/Resources/Human+Capital+Center/to discover more.

Reward & Compensation & Incentives:

Pay-for-Performance

Original content or the Reward, Compensation & Incentives section

o the PCPS Human Capital Center was provided by August Aquila and

Coral Rice, who are highly regarded consultants to the CPA proession,

especially in the area o owner and sta compensation.

Set the Firms Mission, Vision and Core Values

The rst step in designing a c ompensation plan is to determine your

rms purpose, uture and key ideals. Firms that have not completed

this step prior to addressing a new compensation model can reer to

the Strategy and Planning section o the PCPS Human Capital Center.

The rm should also develop a core value evaluation on which to

measure adherence to the rms core values. Reer to the Core Values

Survey Tool to learn more.

Create the Firms Strategic Plan

The Strategic Plan document helps all stakeholders understand how the

rm will accomplish its mission and vision and who will be responsible

or each goal. From here, you can learn how to best pay team members

based on perormance. For rms that do not have a Strategic Plan,

please reer to the Strategy and Planning section.

Develop and Communicate a Firm-WideCompensation Philosophy

Next its imperative that the rms mission, vision and values are

refected in its compensation philosophy. Furthermore, this philosophy

must be made available to team members and reerred to regularly.

The Sample Compensation Philosophy will help get you started with

this step.

This tool icon refers to Tools that are available

in the PCPS Human Capital Center.
http://pfp.aicpa.org/http://infotech.aicpa.org/http://fvs.aicpa.org/http://pcps.aicpa.org/http://pcps.aicpa.org/Resources/Human+Capital+Center/http://pcps.aicpa.org/Resources/Human+Capital+Center/http://pcps.aicpa.org/http://fvs.aicpa.org/http://infotech.aicpa.org/http://pfp.aicpa.org/


3/9

pcps.aicpa.org/resources/human+capital+center2 Reward & Compensation & Incentives: Pay-for-Performance 3

Determine Desired Outcomesof a New Compensation System

An eective compensation plan outlines the newly implemented

changes and benets in the revised compensation system/plan.

The ollowing are some o the questions that must be answered

armatively to ensure a good plan how does your rm score?

Is the system air?

Have you involved those most aected by the plan?

Does everyone understand how it works?

Does it encourage everyone to do whats best or

the clients?

Does it reward or current production as well as

uture capacity?

Is the compensation system tied to the frms

strategic goals?

Does the system usually provide or predictability

in total compensation year-over-year?

Will the system keep the frm alive ater the retirement

o senior owners?

In addition, what other outcomes does the rm want rom a new or

re-designed compensation plan? Review the Desired Outcomes of

New Comp System Template to help you address these questions andconsider outcomes that are important to your rm. Every compensation

plan should be constructed to help the rm achieve its strategic goals

and to attract, reward and retain the right people. I the plan does not

accomplish these two objectives, it needs to be restructured.


4/9


Design New Compensation Systems/Plans

Once you have a solid oundation, youre

ready to build the actual compensation

plan. Remember, todays workers

are generally loyal to themselves rst

and the rm second. Your athers

compensation plan wont work today.

The present workorce requires a very

dierent kind o compensation plan.

While rms will design dierent plans,

there are undamental principles to

which every plan should align. Consider

the ollowing:

Establish undamentals, like who will administer the plan, eligibility

requirements, tracking results, etc.

Ensure the plan is win-win-win or each o the three critical

stakeholders: clients, employees and shareholders.

Use satisers (which attract and retain) and motivators (which drive

people to improve perormance).

Get owners, employees, or both, involved in the design.

Balance rewards or results and eort.

Identiy measures, dene targets and track perormance. Check out

the Firm Competency Model and Core Values Survey Tool to help

measure success.

Create high trust between owners and employees. Low trust can

kill a compensation plan.

Avoid side or one-o agreements to prevent dierent classes

o citizens in your rm.

Recommit and re-engage everyone in the rst year. I there are

problems with the initial design, explore them and make the

necessary modications.

Budget or bonuses. A modest budget or bonuses is advisable.

I all owners and sta in a rm achieve their goals, the nancial

results should be there to support more signicant bonuses.

Communicate. Be sure to allocate sucient time to explain the

program, answer questions and allow individuals to see the

dierences between the current and past plans.

A best practice is to provide team members with a list o

Frequently Asked Questions in an eort to address questions,

concerns and transparency. Employ the Sample Frequently Asked

Questions Tool as the oundation or your rms list o FAQs.

Develop Win-Win Agreements

There is no single compensation plan that works or all rms; thereore,

it is necessary to develop an individual rm-based list o compensation

criteria. We suggest a list that includes activities that produce results

today, as well as activities that will build capacity or producing results

tomorrow.

At the beginning o each scal year, each sta member, together with

his or her manager or owner, should develop agreed-upon individual

perormance goals that align with the rms strategic goals usingsome type o goal-setting orm or template. Not only are goals dened

at the beginning o the year, but also measures and targets or success

or each goal are dened. The Perormance Management section o the

PCPS Human Capital Center oers tools and guidance on establishing

goals based on a Firm Competency Model.

See the Goal Category Checklists or sample goals (including

measures) and goal categories. Category weightings or the purpose

o computing year-end perormance ratings vary among rms and


5/9


individual people. At the end o the year, use these measures to

determine the degree to which the employee or owner has achieved

each goal.

There are sample win-win agreements outlining goal categories, goals

and measures in the Tools sub section. These agreements can be as

simple or complex as desired. We strongly recommend starting with

a simple agreement, but note that each rm must develop unique and

dynamic win-win agreements based on its rms vision and strategic

initiatives.

The Sample Partner Win-Win Agreement includes the ollowing ve

sections:

Base Compensation

Over time, base compensation should become a lower percentage

o total compensation so that more compensation (at least 25% or

more) is at risk and based on current-year perormance.

Core Values

All partners are evaluated by peers and a number o employees on

how well they uphold the rms core values using the Core Values

Survey Tool.

Objective Performance Criteria

There are hundreds o objective production criteria on which a rm

can evaluate individuals and could include personal production,

book realization and business development.

Balanced Scorecard

Use this to measure goals that may not have immediate ties

to production, like developing new services, mentoring team

members, transerring business to another partner, etc.

Discretionary Bonus Allocation

Because not all people contribute equally, this bonus should ideally

be allocated based on extraordinary perormance and/or a special

and unique contribution(s).

Develop and Implement a Transition Plan

Team members must trust the measures and the measurement tools to

eel comortable with the new compensation plan. It is advisable to pay

the people based on the old plan, but show them what they would have

earned under the new plan. By using this method, you ensure:

The new plan creates alignment.

You are able to track measures and provide

quarterly reports.

Communication is timely and on target.

You are able to debug any problems.

Ater introducing the new plan, meet regularly and oten with

employees and owners to conrm people understand the system, as

well as the actions they must take to meet the stated goals. As you gain

experience with the new plan, ask yoursel the ollowing questions:

Are we seeing the right behaviors rom all our

team members?

Is our overall productivity improving?

Is owner and employee morale improving?

Are we on track to achieve our goals?

Are we gaining alignment with key

stakeholders employees, clients

and owners?

To assist in communicating the timetable or implementation and to

answer questions employees naturally have about the new plan, we

have included the Sample PFP Calendar of Events and the Sample

Frequently Asked Question documents, respectively.


6/9


Sample Win-Win Agreement tools

are provided to demonstrate

examples of how firms can develop

their own unique and dynamic

individual compensation contracts.

Manage Performance

Managing perormance is not something done only at year end;

workers must know they are being held accountable. They also must

hold each other accountable or their perormance throughout the year.

Bruce Tulgan, author o FAST Feedback, suggests that oten the

dierence between a low-perorming team and a high-perorming team

lies in a coaching-style manager who knows how to keep individual

perormers ocused and motivated day ater day. Tulgan believes

employees should receive FAST eedback: Frequent, Accurate, Specifc

and Timely. These are the our qualities employees most oten ascribe

to evaluations rom the best manager they ever had, but also to

responses they need but dont get rom most managers. Employees

should receive both positive and constructive eedback.

The PCPS Human Capital Centers Perormance Management section

oers additional guidance on managing perormance. Reer to the

Feedback and Eectively Managing Perormance Guideor specic tips

and direction or your team members.

Review the CompensationSystem/Plan Annually

Ater implementing a pay-or-perormance compensation system, the

rm should assess its plan annually to determine whether it is helping

the rm meet strategic objectives.

This means analyzing i the rm accomplished the desired outcomes,

i people are engaged in necessary behaviors or accomplishing the

goals, and i there were faws in the system/plan that prevented people

rom doing what needed to be done. Accomplish this analysis by

surveying employee satisaction with the new plan, benchmarking and

updating, as necessary.

The PCPS/TSCPA National MAP Survey and the 2006 CPA Owner

Compensation Survey can assist you with the benchmarking analysis.
http://pcps.aicpa.org/NR/rdonlyres/40590704-623E-4DB8-8131-6671A444CE5A/0/Feedback_Effectively_Managing_Peformance.dochttp://pcps.aicpa.org/NR/rdonlyres/40590704-623E-4DB8-8131-6671A444CE5A/0/Feedback_Effectively_Managing_Peformance.doc


7/9


Other Rewards and Recognition

Non-Financial Rewards

Human beings like being recognized and acknowledged or a job well

done. Studies show that non-monetary awards can be as meaningul as

monetary ones. Consider doing the ollowing:

Providing lunch or meeting short-term goals

Closing early on Friday

Sharing git cards

Awarding frm dollars or frm products

and/or logo wear

Spotlighting the employee o the month

in an internal and/or external newsletter

Providing special parking privileges

Allowing extra paid time o

Hosting frm and/or department outings

Recognizing Tenure

While pay should not be tied to tenure, recognition should be. Long-

term, productive employees are key to every successul business,

but especially or accounting rms where client relationships are

paramount. A service award based on tenure is a way o saying

thanks to people who have contributed to the rms success. Some

examples include a rm pin, git certicates and individual time with

the managing partner at specic intervals.

Remember to make a big deal out o any and all promotions and service

awards. These milestones present great opportunities to remind team

members that they are part o a amily and that the rm is interested

in everyones personal growth. Building a sense o amily and

appreciation is an invaluable retention tool or any size rm.

Speaking o retention, visit the PCPS Top Talent Studybooklet and the

Employee Retention Guide to gather additional incentive ideas and best

practices.

Following the above ten steps can lead you and your rm to a

successul pay-or-perormance program that will better enable you to

attract and retain the best and brightest in the proession.

NOTE: The book Compensation as a Strategic Asset: A New Paradigm

was also written by August Aquila and Coral Rice. It is an impressive

guidebook to navigating the tricky subject o partner compensation. As

your rm progresses through the journey o implementing a pay-or-

perormance program, you might want to reer to this valuable tool.PCPS members can receive a discount when purchasing Compensation

as a Strategic Asset.

Visit aicpa.org/PCPS and become a member today. Youll enjoy

access to an array o tools and resources r elated to stang and

compensation issues. To nd out i your rm is already a member,

email [email protected].
https://pcps.aicpa.org/Admin/CSCLogin?ReturnURL=%2fResources%2fHuman%2bCapital%2bCenter%2fWork%2bLife%2band%2bRetention%2fPCPS%2bComplimentary%2bTop%2bTalent%2bStudy%2bBooklet.htmhttp://www.cpa2biz.com/AST/Main/CPA2BIZ_Primary/PracticeManagement/Staffing/PRDOVR~PC-090493/PC-090493.jsphttp://pcps.aicpa.org/http://aicpacommunities.org/http://aicpacommunities.org/http://pcps.aicpa.org/http://www.cpa2biz.com/AST/Main/CPA2BIZ_Primary/PracticeManagement/Staffing/PRDOVR~PC-090493/PC-090493.jsphttps://pcps.aicpa.org/Admin/CSCLogin?ReturnURL=%2fResources%2fHuman%2bCapital%2bCenter%2fWork%2bLife%2band%2bRetention%2fPCPS%2bComplimentary%2bTop%2bTalent%2bStudy%2bBooklet.htm


8/9

pcps.aicpa.org/resources/human+capital+center12

Access These Tools At aicpa.org/PCPS

Core Values Survey Tool

Sample Compensation Philosophy

Desired Outcomes o New Comp System Template

Sample Frequently Asked Questions

Goal Category Checklists

Sample Partner Win-Win Agreement

Sample Manager Win-Win Agreement

Sample PFP Calendar o Events

2006 Owner Compensation Survey
http://aicpacommunities.org/http://aicpacommunities.org/


9/9

2254L-378

aicpacommunities.org

American Institute o

Certifed Public Accountants

220 Leigh Farm Road

Durham, NC 27707-8110

SpecializedCommunities
http://aicpacommunities.org/http://aicpacommunities.org/

2254l378 pcps hc reward compensation incentives

Documents