EXECUTIVE SUMMARY

MEYNERS INSTITUTED A PAY-FOR-PERFORMANCE system to get employees involved in the firm’s growth efforts. It includes an annual salary increase that reflects a cost-of-living adjustment (COLA) and three bonus pools related to three areas: core values, core competencies and meeting goals. EMPLOYEES UNDERSTAND WHAT'S EXPECTED of them and embrace the core values of collaboration, balance, commitment to quality and responsive customer service, commitment to the greater good, continuous and never-ending improvement, creativity, fun, innovation, integrity, profitability, risk taking and mutual respect, honesty and trust. THE FIRM'S EVALUATION SYSTEM MEASURES how well employees work with peers, managers and subordinates. Supervisors and employees coordinate the selection of six individuals who regularly work with the employee to evaluate his or her performance. THE FIRM GIVES EMPLOYEES A CORE-VALUES BONUS based on the percentage of possible points each earns on the evaluation multiplied by a predetermined bonus based on the employee’s staff level, years with the firm and level of responsibility. THE FIRM AWARDS A CORE-COMPETENCIES BONUS calculated from the percentage of possible points employees earn on an evaluation multiplied by the employee’s predetermined bonus. WIN-WIN AGREEMENTS ARE TAILORED to each individual and set targets tied directly to generating income or some other benefit for the firm. Partners and managers may have win-win agreements that deal with bringing in business. A staff accountant’s may involve developing capabilities to better serve the firm. Employees who achieve 75% of the total possible points available in the win-win agreement are eligible for a bonus.

PHAEDRA BROTHERTON is an Arlington, Virginia-based business writer who specializes in career, management and workplace issues. Her e-mail address is Phaebro@aol.com.

t was no small feat for Meyners and Co.’s leadership to offer employees nonstop support and guidance while both management and staff refined the firm’s core values and worked out what behaviors demonstrating them would consist of at different levels of the workplace hierarchy. As productive as the process was, it was only the foundation. Next, Meyners had to successfully increase employees’ commitment to the firm’s overall marketing and revenue-growth goals. To accomplish this the firm designed and implemented a pay-for-performance system in July 2002.

To Do… A pledge to strengthen staff—existing and new—topped the “must-do” list for the top 100 CPA firms in 2003. Source: Accounting Today, 2003.

The new compensation program includes a yearly salary increase that reflects a cost-of-living adjustment (COLA) and three bonus pools. It calls for the firm to evaluate employee performance in three areas: core values (workplace behavior), core competencies (business skills) and meeting goals (performance-measures win-win agreements). Early indications are that the individualized evaluation process is motivating employees. Janet McHard, CPA and manager in the litigation and business valuation services department, says the new system helps underscore what the firm values. If you contribute, not only will your efforts be recognized, but “you’ll be compensated for having worked hard to meet those goals,” says McHard. “This system puts my job destiny in my hands. It removes the uncertainty of: ‘If I do a good job, will anyone know?’ From my perspective, that’s the coolest thing about it.” Here’s how it works.

Each evaluator then rates how successfully the subject has lived the value by checking one of three ratings: “Needs mentoring” (individual is not meeting expectations); “lives the core value” (he or she is meeting expectations) or “role model” (he or she has clearly and consistently surpassed expectations). The results are tabulated and electronically scored. To encourage candor, subjects and supervisors do not see individual evaluators’ ratings but instead see a summary of the results in each area. The human resources clerk coordinates the process and maintains and files the evaluation records.

Employees receive a core-values bonus based on the percentage of possible points they earn on the evaluation. For example, someone who earns 70 points out of a total of 100 possible points gets 70% of $1,000 (the predetermined maximum), or a bonus of $700. The executive committee sets the baseline bonus, which is linked to the employee’s staff level, years with the firm and responsibilities. Employees feel they get credit for a range of professional interactions under the new system (see exhibit 1, below).

Exhibit 1: Core Values and Linked Behaviors
For illustrative purposes some sample core values are stated below with descriptions of behaviors that demonstrate how the value manifests for levels one, two and three. Level-one behavior is the baseline expected of all employees. Level two raises the bar and applies to midlevel or professional employees. Level three applies to executive-level or partner-level employees. Each level is accountable for the one(s) below it. For instance, midlevel and professional employees are accountable for all level-one behaviors, and executives and partners are accountable for all level-one and level-two behaviors.
Collaboration. Level one: Exhibits a desire to work with others in a team environment. Level two: Assists others to rally around a common goal, regardless of their experience, level or education. Level three: Fosters a team environment within a department and among other departments across all staff levels. Commitment to maintain self, team, firm and customer balance. Level one: Recognizes the need to maintain balance between professional and personal roles. Level two: Clearly communicates job or engagement expectations of employees. Level three: Considers the global impact on staff and firm resources of commitments made to clients. Commitment to quality and responsive customer service. Level one: Listens to customers and asks questions to determine and serve their needs. Level two: Makes resources available to staff and others to ensure the performance of high-quality work. Level three: Ensures performance and review systems that demand quality work are established and operating. Commitment to the greater good. Level one: Makes personal choices/actions in the best interest of the client, group and firm. Level two: Considers the needs of other department members to prevent making unreasonable commitments to clients and others. Level three: Considers impact of commitments and decisions on other departments and firm as a whole.	Innovation. Level one: Seeks opportunities to do things better. Level two: Refrains from responding, “That’s the way it’s always been done.” Level three: Researches “best practices” for possible implementation in department and firm. Mutual respect, honesty and trust. Level one: Communication with peers demonstrates respect. Level two: Consistently delivers what is promised to clients. Level three: Consistently demonstrates respect for clients. Profitability. Level one: Demonstrates commitment to meeting billable-hours goals. Level two: Considers revenue opportunities and expense-reduction opportunities in decision-making process (cost/benefit). Level three: Establishes atmosphere of high productivity and accountability. Risk taking. Level one: Owns up to mistakes and learns from them. Level two: Is daring and adventurous in thought process. Level three: Encourages others to devote the necessary time/resources to research, develop and implement new ideas.

TECHNICAL AND BUSINESS SKILLS
To help Meyners focus on its profitability goals, consultant Coral Rice of the Growth Partnership (TGP)—who has worked on the firm’s growth program from the beginning—used information collected in an earlier phase to develop a list of general categories for core competencies. Those competencies represent the specific job-related skills employees need to “get results now and develop the firm’s ability to get better results in the future,” she says. The general categories are

Client development.
Client management.
Business management.
Technical expertise and work quality.
Personal participation and professional development.
Leading and developing others.
Administration.

Employees receive a core-competencies bonus based on the percentage of possible points they earn on the evaluation multiplied by the employee’s predetermined bonus (bonus x percentage), just as they receive for their core-values evaluation. As part of the annual core-competencies review, the employee and supervisor discuss the individual’s development plan, which includes goals for professional development, such as earning a special certification, and pinpoints skills to strengthen or develop, such as writing and public speaking.

HITTING THE NUMBERS OR WIN-WIN AGREEMENTS
Core competencies are specific skills and duties employees must be able to perform well to meet the firm’s profitability goals, says Rice. Each employee and supervisor create a win-win agreement that includes specific performance numbers or other measures to meet. Tailored to each individual, the win-win agreement is “the product of the consensus of management and the employee,” Comeau says. “It’s a way to make personal and professional growth part of daily and long-term activity,” he says.

For example, a competency to “participate in departmental strategic objective teams,” might result in a “win-win” goal with a measurable element such as: “Participate in the (name of team) with 90% attendance.” Another example: For the competency “pursue/accomplish professional certification,” a win-win agreement goal might be: “Obtain CVA certification no later than 12/31/03.”

The goals in win-win agreements may be similar for people in comparable roles, but the actual numbers or measures likely will differ. Many targets will be tied directly to the profitability of the firm and have to do with generating income. The supervisor and the employee specify the measures and numbers based on what each thinks is possible.

Partners and managers have win-win agreements that deal directly with the firm’s financial performance as well as department and individual goals. For instance, a partner may agree to bring in a certain dollar amount of business in his department. Or a staff accountant may agree to take a set number of courses toward a certification by a certain date. This increases the employees’ professional capabilities as well as those the firm has to offer clients.

If the firm shows a profit at the end of the calendar year, employees who achieve 75% of the total possible points available in the win-win agreement are eligible for a bonus. Each department determines profitability goals during the annual budget process based on their billable hours, revenue goals and anticipated expenses.

The partners who make up the executive committee approve the departmental budgets in November to coincide with the start of the profitability bonus year, which runs from November through October. In December the executive committee meets to allocate the profits among all the stakeholders. The committee determines a gross allocation for each department. How well a department met its profitability goals determines how much of the profits it will be allocated. The department heads use agreed-on organizational criteria and their own judgment to allocate that profit to the employees.

LIGHT AT THE END OF THE TUNNEL
Although the hard numbers for measuring the effects of the new pay and evaluation system aren’t in yet, Meyners’s litigation services partner Thomas Burrage, CPA, says it has improved morale and increased commitment to the firm’s goals. The overhaul of its compensation and performance process—sensitive issues for employees—will continue to require time, effort and patience on the part of the entire firm as it plays out.

For firms thinking about undertaking a similar effort, professionals at Meyners say to keep the following pointers in mind.

Prepare to take time. Meyners has invested a substantial amount of time to define values, core competencies and goals as well as to analyze and describe exactly what is expected of employees. Burrage says the firm has spent “thousands of hours” in meetings to come up with the core values, define the job descriptions and explain each part of the process to staff. Because the performance evaluation system is well defined and staff members understand what is expected of them, “ultimately, the process is going to be automatic and simple to use,” says Comeau.

Frequent communication is paramount. Instituting a new pay-for-performance system has required constant communication because the change involves people’s money—and extends into every aspect of work life. “Until you understand the process and the system, it appears complex,” says McHard, so we keep answering the questions that come up. Meyners has done this through FAQ sheets, posters and meeting after meeting. Under the old system, salary increases were “some percentage” of an employee’s salary, says a Meyners document explaining the new three-part pay-for-performance plan. “While the increase was intended to reflect past performance, it often was difficult to assess performance accurately and consistently throughout the firm.”

Employees are particularly sensitive when it comes to salary, says Burrage. “Any time you modify someone’s compensation system, you have to work hard to reassure them you aren’t taking anything away,” he says.

Have adequate administrative support. Because many more people are involved in giving evaluations—especially of core-values performance—and because each employee gets three evaluations—core values, core competencies and the win-win agreement—there is a great deal of work involved to keep track of evaluation dates, distribute and tabulate the various forms and calculate the bonuses. The firm has hired a human resources clerk who does this and attends to other compensation and payroll duties involving the new pay-for-performance process. Prior to the new process, many such duties had been handled by a senior administrative professional, but Meyners created a new position to handle the growing amount of HR-related work as the company grew. The firm uses an HR computer program to process the evaluations.

Develop measurement systems. The firm would like to measure many things—such as the number of referrals shared between departments—but it has found the most important things to measure have been the various goals outlined in win-win agreements. “You need to have the systems in place to measure the things you hold people accountable for,” says Comeau (see “Accountability by Numbers,” JofA, Jun.03, page 61).

THE PAYOFF
Comeau believes the new pay-for-performance system sends a strong message to employees that the firm cares about them as well as profits. “The new system takes a global approach to giving incentives for behavior. It’s not just about dollars,” says Comeau. “The process identifies behavior that not only helps us make money but also evolve as a firm—and get better professionally and personally at every level,” he says. “It’s about the future as well as the present.”

For the next stage of the firm’s development, says Burrage, Meyners will determine specific marketing strategies and train staff to carry out duties to support and reach the firm’s business goals. The JofA will report on the results.