Using Competency Models for Higher

Levels of Performance

Accountants Advisory Groupwww.AccountantsAdvisory.com

Accountants Advisory Groupwww.AccountantsAdvisory.com

Strategic consulting to CPA firms Leadership, management and strategic direction Advisory services pertaining to partnerships agreements, partner

compensation & retirement agreements, etc. Marketing, new business development and public relations

strategies Merger and acquisition consulting Human capital and recruiting programs Partner retreat facilitation Recruiting partners and managers Objective and independent advice Practical experience from industry specialists

The “Perfect Storm”

Gender Unfunded Retirement Increased Competition Leadership

Consolidation/Franchises Retiring CPAs Quality CPAs

CPA Firm Life Cycle

• Initial Stages of Development

• Running the practice in a more formal fashion

• Mergers with smaller practices

• New partners• Attracting

experienced staff

• Establishing niches and specialties

• Economy and market conditions cause decline in revenues and profits

• More competition for clients and talent

• Founding and “rainmaker” partners retiring

• Succession planning problems

• Establishing a client and referral base

• New partners

Start upGrowth -

Established Mature-Expanding Challenged Declining

• Seek exit options• Merger• Sale• Dissolve

2012 PCPS Succession Planning Survey

79% of firm owners say succession planning will be a significant issue for them in the next 10 years.

44% of multi-owner firms either are discussing a merger, acquisition, or sale, or are planning to do so in the next 2 years

Future Classification of Firms

Consolidation / mergers will take place at a rapid pace and as a result, the future classification of firms will change and will look like:

Large Regional/Local

Mega-Regional

Small National

Large National

International

Big 5

Top 10 Attraction Factors:2011 vs. 2006

RANK TOP ATTRACTION FACTORS 2011 2006 PERCENT-POINT CHANGE

1 Career growth opportunities 91% 80% 112 Salary 88% 78% 103 Paid personal / vacation time 86% 79% 74 Open-door / accessible management 83% 68% 155 Comfortable office atmosphere 81% 69% 126 Interesting, challenging client projects* 81% 71% N/A7 Medical benefits 73% 70% 38 Firm’s reputation or prestige 73% 59% 149 Retirement savings plan 72% 67% 5

10 CPE credit reimbursement 65% 50% 15

Source: PCPS 2011 Top Talent Survey. * The 2011 survey asked separately about client and internal projects. The 2006 survey asked about client and internal projects combined.

Driving Value

Leadership

State of the Art Technology

Marketing, Public Relations and Practice Development

Recruiting the best

talent possible at all levels

either directly or through

M&A

Training, Career

Development, Succession Planning, Partner &

Staff Performance Management

Leading edge services, industry

specialization & niches

Efficient & timely delivery

of service

Human Resource Management

Practice & Engagement Management

ValuesProfits

STOP making Excuses—The Time to Change is NOW

“It is not the strongest of the species that survive, not the most intelligent, but the ones most responsive to change.”

—Charles Darwin

Top 10 Accountant's Excuses For Not Implementing A Performance Management Plan

DeadlinesToo many

client demands

Going on vacation

TakingCPE

Unqualified staff

Top 10 Accountant's Excuses For Not Implementing A Performance Management Plan

Returning from

vacation

Engaging new client

Writing newsletter

article

Staff person quit

Clientcrisis

Build a Quality Staff Pyramid …the Clients Will Come

Managers

Staff

Managing Partners / Senior PartnersJunior Partners

WorkFlowingDown

WorkFlowing

Up

Inverted Pyramid Structure

Leverage

Is the firm over-partnered for the current state of the “new economy”?

Is the firm “carrying too many underachieving partners and mangers? Is the firm too “top heavy”?

Does the leadership of the practice need to make some tough business decisions regarding the “Over-Partnered Syndrome” for the benefit of the firm?

Are high billing rate partners doing too much low level work? Is the current partner compensation program demotivating partners

to delegate to junior partners or managers?

Managers

Staff

Partners

Supervisors

Historical Pyramid Structure

WorkFlowingDown

WorkFlowing

Up

Partner & Staff Structure

Do we have enough “quality” staff in the appropriate positions to have a successful delegation process?

Are we properly developing our staff? Is the firm’s scheduling process taking into account the

proper matching of work and talent and career development? There is a direct connection between the “partner-to-staff

ratio” and the ability of firms to be successful in the long-term and develop succession planning.

Need at least a 1:5 partner to staff ratio.

Winners, Comfort Zoners, Journeymen

Winners—20% Passionate about their careers. Have a personal strategic plan Continuously upgrading their skills and knowledge. Upgrade their client base Continuous career development and self-improvement Able to increase billing rates and collect

Winners, Comfort Zoners, Journeymen

Comfort Zoners—60% Shy away from challenges that will truly test them and require them to learn

new skills. Fairly competent accountants who work hard, and provide good client

service. Not progressive—status quo They have a job Take no risks No future game plan Satisfied Volume/factory generators

Comfort Zone

.

Winners, Comfort Zoners, Journeymen

Journeymen—20% Don’t care Short-term players Journeymen-move to different firm

every few years

Performance Management

Performance Management

Provide clear objectives

Rating and ranking against competency standards

Measuring achievements

Providing honest and unbiased feedback

Linking compensation and rewards to performance

Expectation Gap

Performance Expectations

Performance expectations serve as a foundation for communicating about performance throughout the year.

They also serve as the basis for assessing performance.

When you set clear expectations about the results that must be achieved and the methods or approaches needed to achieve them, you establish a path for success.

Performance Expectations—A 2 Way Street

Performance objectives express mutually understood agreements for results that an employee is expected to produce during the performance assessment period.

Performance objectives are not separate from an employee’s job, but part of the job.

Performance objectives are “ends” towards which you and your employee direct effort and focus resources.

Characteristics of Professionals inSuccessful Firms

Energy Drive Enthusiasm Motivation Morale Determination Dedication Commitment

Performance Management Implementation Using Competency Models

Competency Model

TraditionalTraining

Reward &Compensation

PerformanceManagement

PartnerDevelopment

Non-TraditionalTraining

Work Product and Work Quality Technical and Accounting Knowledge ProfessionalismAnalytical Skills Team Building and Team WorkClient Focus/Client Service Communication

Business AcumenProject ManagementRelationship Building Risk Management Supervisory SkillsManaging a Profitable Business Business Development 

Performance Management

Accountability for Implementing the Firm’s Short-Term and Long-Term Plans

Annual goals and competency standards that are linked to the Firm’s strategic plans

Compensation program that rewards each partner fairly based upon the firm’s profitability and achieving goals

Counseling and guidance

Work Product and Quality—Manager & Above

Develops and manages project milestones; ensures they are achieved Involves Partners at appropriate time throughout the project Determines deliverable content and format to meet project

objectives/client expectations Partners with the client to align work product with client’s business

strategy Designs and produces solutions aligned with project objectives and client

expectations (business strategy) Assigns responsibilities for tasks and decisions; coordinates the team’s

activities Sets clear goals, objectives and measures for the project Reviews work of others—ensures quality of deliverable(s) Utilizes project results to continuously improve work/future projects

Analytical Skills—Senior

Effectively gathers, organizes and summarizes data Understands rationale behind tasks and ultimate objectives Interprets data and arrives at conclusions Questions procedures in achieving objectives Questions data integrity Identifies obstacles to collecting and analyzing data Applies information, logic and experiences to suggest solutions and

alternate processes Conducts research to formulate and support recommendations

Analytical Skills—Supervisor

Identifies opportunities for creative problem solving Resolves obstacles to collecting and analyzing data Evaluates the quality of information considering its source, relevancy

and timeliness Performs complex data analysis Recognizes when additional expertise is needed to address client

issues and communicates with client service team

Analytical Skills—Supervisor

Recognizes the broader impact of proposed solutions Challenges logic used to assess problems Identifies related problems and issues when solving problems Makes timely and sound decisions Accurately defines a problem based on an understanding of technical

requirements and/or client needs Applies learning from prior experiences to interpret current situations

Analytical Skills—Manager & Above

Identifies the most critical issues of a client's situation Develops solutions to resolve technical or business issues Identifies Firm and external resources to solve client problems Develops innovative approaches for similar client situations Solicits creative ideas from the team Challenges ideas and conclusions of the team and the client Probes beneath the surface of problems to determine root causes Recognizes risks associated with innovative ideas and problem-solving

approaches Analyzes data based on reasonable assumptions, factual information and

vision

Technical Skills—Auditing & Accounting Staff

Is learning to read and interpret financial statements Performs specific accounting tasks as delegated Is learning and progressing in the knowledge and application of

accounting principles Is learning and progressing in the knowledge of auditing and accounting

standards Is gaining a general knowledge and awareness regarding tax issues Is learning to prepare financial statements Is learning and progressing in the area of computer applications in

facilitating the auditing procedures

Work Product and Quality—Senior

Completes deliverables in a timely manner Produces deliverables that are clear, concise, thorough and of

professional quality Ensures job execution, documentation, consultation and completion in

accordance with required policies and procedures Executes self-review of all work Generates solutions aligned with project objectives and client

expectations Demonstrates an understanding of how work product links to client’s

business strategy

Technical Skills—Auditing & Accounting Senior

Reads and interprets financial statements Performs specific accounting tasks as delegated Progressing in the knowledge and application of accounting principles Progressing in the knowledge of auditing and accounting standards General knowledge and awareness regarding tax issues Preparation of financial statements Progressing in the area of computer applications in facilitating the

auditing procedures

Technical Skills—Auditing & Accounting Supervisor

Demonstrates solid judgment when interpreting data Helps staff to develop Accounting knowledge Acquired the knowledge and application of accounting principles and is

sharing knowledge with others Acquired knowledge of auditing and accounting standards and is sharing

knowledge with others General knowledge and awareness regarding tax issues Preparation and review of financial statements including disclosures Uses computer applications to facilitate the auditing process

Competency Models—Defined Roles & Accountability

Come Ready to Play Every Day

Technical Skills

A high level of comprehensive technical skills that is respected by clients, staff, and referral sources.

Continuously upgrades technical skills to become more valuable in the marketplace.

Strong expertise in a niche or industry.

Takes pride in their work and shows a personal commitment to quality.

Leadership & Team Player

Respects partners and employees of the firm. Is a mentor and counselor, who is fair and objective. The firm comes first before personal gain. Is both client and staff centric.

Is entrepreneurial and takes calculated risks to grow and improve the firm. Willing to invest personal capital into the firm.

Recognized by partners and staff as a trusted professional and manager of the firm. Is a role model to younger staff.

Is a team player. Prioritizes the needs of the firm and takes the initiative to complete tasks and projects on a timely basis.

Is willing to be held accountable for performance. Makes no excuses for underachieving.

Not a Great Role Model

.

Leadership & Team Player

Has enthusiasm and a positive attitude for the profession, the firm, and clients.

Communication skills are clear, concise, and confident whether dealing with clients, staff, or prospects.

Is willing to assist in resolving conflict and by acting as a liaison between people in the firm.

Contributes to firm management by committee involvement and taking on special projects

Leadership and Team Player

Follows the One-Firm Firm concept and puts the firm first.

Provides constructive feedback on a continuous basis and is a good coach.

Is a team player and good role model. Works hard at relationship building.

Concerned about long-term issues, not just short-term profits.

Is a source of creative ideas about the firm.

Client Service & Relationships

Meets with clients throughout the year and provides solutions to their business and personal financial problems.

Clients seek out advice and counsel and is truly considered a trusted advisor in all aspects of their major business and personal financial decisions

Excels at client retention Provides a greater level of client service with each year Receives referrals from clients Generates additional revenue from clients

Client Service & Relationships

Generates additional revenue from clients Transfers clients to others when appropriate Culls out C & D clients when appropriate Has strong client relations and is considered a “Trusted Advisor”. Clients are not just satisfied, they are “delighted clients”. Has a strong history of client retention. Clients refer friends and colleagues.

Practice Development

Has a strong network of relationships with professionals outside the firm, such as attorneys, bankers, high-net-worth individuals and corporate executives

Commitment to firm/niche marketing Ability to generate new revenue Ability to generate additional revenue from existing clients Ability to cross-sell firm services Ability to increase personal billing rate and collect it

Practice Development

Continuously demonstrates the ability to engage new business.

Markets for quality clients, not quantity and continuously upgrades his client base.

Strong relationships with referral sources and the business community.

Generates additional work from existing clients.

Engagement Profitability & Management

Manages engagement profitability and quality on a frequent basis. Clients generate high realization rates. Consistently upgrades client base with high profitability clients.

Disengages “C” clients. Demonstrates timely and effective billing and collections

Combining Competency Modelsand SMART Goals

Goals

Develop “SMART” Goals• Specific• Measurable• Attainable• Realistic• Time-Framed

Align individual goals with firm objectives

Include a self-evaluation in the process

Utilize weightings and ratings to evaluate actual performance

The Elements that Make a Goal SMART

Specific Specifically define what you expect the employee/partner to do/deliver. Avoid generalities The level of detail you need to provide depends on the employee’s

personality and their experience level. For example, a highly autonomous or experienced employee will need less detail than a less confident or seasoned one.

Measurable Identify how you will measure success—usually stated in terms of

quantity, quality, timeliness or cost (e.g. increase by 25%).

The Elements that Make a Goal SMART

Actionable/Achievable Make sure that accomplishing the goal is within the employee/partner’s

realm of authority and capabilities. Can the employee successfully complete this goal with the skills,

resources and time available to them? Are there factors beyond their control that need to be considered? While considering whether a goal is actionable/achievable, you also need

to consider the partner’s/employee’s total set of goals. While each individual goal may be achievable, overall, you may be assigning the employee more goals than they could reasonably be expected to successfully complete.

The Elements that Make a Goal SMART

Agreed upon: Sufficient space to provide a detailed description A field to list the higher level organizational goal that this goal is linked to An area to list any important milestones A separate field to capture the way success will be measured A separate field for the due date A limited number of fields to enter goals, to limit the overall number of

goals assigned to each employee

Using Weightings to Prioritize Competencies & Goals

Communicates the relative importance Assists in prioritizing work on a day to day basis Decisions when faced with competing demands Often used when compensation in tied to performance ratings Reflects the firm’s values and priorities

3-year Goals

1-year Goals

Long-Term Vision and Goals

Setting and Achieving Goals

90 Days

Daily To

Do’s

1-Year Goals

Long-Term Vision and Goals

3-year Goals

6-Month Goals

Partner Accountability, Goals, and Weightings

Partner Compensation Criteria

Criteria Weight

Financial Goals 50%• Collections: $1,600,000• Realization Rate: 90%• Average Days A/R: 45• Average Days W/P: 45• Billable Hours: 1,200

Marketing Goals 15%• Net New Business: $200,000• New Website by 9/30/13• Branding Program by 10/31/13• Establish Wealth Management Niche by 12/31/13

Partner Compensation Criteria

Criteria Weight

Miscellaneous 15%• Assigning clients to other partners: $400,000• Adhering to firm policies• Assisting younger partners and staff to advance• Contribution to staff CPE training

Management of the Firm 20%• Leadership and daily management• Achieving action items assigned from the last retreat• Recruiting of high-level talent• Implement an amended partnership agreement• Manage the implementation of a new Career Development Program

Partner Self-Evaluation

Each partner should prepare a self-evaluation of total performance, including accomplishment of goals and objectives.

Optional criteria to be considered for incorporation into the evaluation: Number of years as a partner Billable hours worked Non-billable hours worked, including hours spent on:

• Practice development • Staff recruiting and training • New niche development• General firm marketing• Training in firm CPE sessions• Special management and administration projects and responsibilities

Partner Self-Evaluation (continued)

Optional criteria to be considered for incorporation into the evaluation:• Client relationships• Client fees managed• Realization rate for client fees managed• Billing rate compared to other partners• Contribution to developing, mentoring and retaining staff• New business engaged this year• Additional fees earned from current clients• Clients lost this year• Quality of technical work• Cooperation with other partners and staff• Contribution to firm management

Partner Self-Evaluation

The advantages of having each partner submit a self-evaluation form prior to the annual counseling and compensation meetings are:• It opens up the lines of communication between you and your partners.

Your partners will be forced to think about their performance, both objectively and subjectively prior to the meeting.

• It will allow you to attain knowledge about your partners’ accomplishments, some of which you may not be aware.

• Both parties will be better prepared for the discussions.

• It will assist you in evaluating how well each partner achieved their goals and objectives.

Sample Partner Self-Evaluation Form Questions

Some sample points to be included in a partner self-evaluation:

Review the partner statistical and other information that was forwarded to you. Evaluate the information and provide me with your opinion of your performance in these areas.

Provide any pertinent information that was not included in the statistical and other information that would assist me in evaluating your performance.

Sample Partner Self-Evaluation Form Questions (continued)

Review results of your past year’s goals and objectives. For those goals and objectives that were not achieved, explain why and what you will do differently in the future to accomplish them.

Indicate your goals and objectives for the new year taking into account the firm’s stated goals and objectives.

Indicate any other discussion items you would like to address in your upcoming annual performance review.

Aligning Performance Management with the Firm’s Objective and Vision

Alignment Process

A firm strategy and vision is developed Goals and objectives are agreed upon to achieve the strategy and vision An action plan is developed Partner and Manager goals and objectives within a competency model

framework are developed in conjunction with the action plan.

Performance Management

Strategic Objectives

Competencies & Goals

Performance Management

Goal Adjustments

Skill Enhancements

Performance Optimization

The One-Firm Culture

Not individual practices under one roof Establishing and communicating the Firm’s organizational

goals that all partners can contribute to. Each partner focuses on how their work contributes to higher

levels of Firm success. Partners (including the managing partner) and staff are held

accountable for performance and results. The practice is run more like a business with entrepreneurial

owners

Talent & Alignment—Factors That Make a CPA Firm Successful

Must create an environment where partners and staff are constantly motivated and can effectively balance their commitment to the firm, the clients, and themselves.

Creating strong links between partners/managers and the kinds of things that motivate them, the firm’s strategy, and the way the firm is organized to deliver the strategy.

The success of a CPA Firm is directly aligned to the partners and staff putting the interests of the firm ahead of their own needs.