APPENDIX
2006 OWNER COMPENSATION SURVEY
Conducted by
August J. Aquila, Ph.D. and Coral L. Rice
Sponsored by
PCPS Division of the AICPA
2006 Owner Compensation Survey
Overall Results
| What type of owner compensation system does the firm currently use? | N | % |
| Equal pay method | 67 | 15.8 |
| Formula method (firm uses algebraic formula to determine income allocation) | 75 | 17.7 |
| Managing owner decides how to allocate income | 53 | 12.5 |
| Compensation committee (small group of owners) decides how to allocate income | 22 | 5.2 |
| Executive committee decides how to allocate income | 21 | 5.0 |
| All owners (meet as a group) to decide how to allocate income | 47 | 11.1 |
| Pay-for-Performance method (objective and subjective goals are predetermined for each owner at the beginning of the year and evaluated at the end of the year)4 | 23 | 5. |
| Paper and Pencil method (all owners recommend a base compensation for each owner including themselves) | 10 | 2.4 |
| Ownership percentage method (income allocate based on ownership percentage) | 28 | 6.6 |
| Eat what you kill (system only rewards individual production effort) | 23 | 5.4 |
| Other (please specify) | 55 | 13.0 |
| Total Respondents | 424 |
| For how many years have you been using this method? | N | % |
| 1 year or less | 13 | 3.1 |
| 2 to 5 years | 81 | 19.6 |
| 5 or more years | 320 | 77.3 |
| Total Respondents | 414 |
| Compared to 10 years ago, how much has your compensation system changed? | N | % |
| Hasn’t changed | 185 | 45.2 |
| Somewhat changed | 142 | 34.7 |
| Significantly changed | 82 | 20.0 |
| Total Respondents | 409 |
| How likely is it that your firm will change its owner compensation system in the next two years? | N | % |
| Not likely | 211 | 51.1 |
| Somewhat likely | 124 | 30.0 |
| Very likely | 64 | 15.5 |
| Not sure | 14 | 3.4 |
| Total Respondents | 413 |
| How satisfied are you with the current system? | N | % |
| Very dissatisfied | 20 | 4.9 |
| Somewhat dissatisfied | 41 | 10.1 |
| Neither satisfied nor dissatisfied | 31 | 7.6 |
| Somewhat satisfied | 181 | 44.5 |
| Very satisfied | 134 | 32.9 |
| Total Respondents | 407 |
| How satisfied do you believe your fellow owners are with the current system? | N | % |
| Very dissatisfied | 14 | 3.4 |
| Somewhat dissatisfied | 44 | 10.8 |
| Neither satisfied nor dissatisfied | 42 | 10.3 |
| Somewhat satisfied | 194 | 47.7 |
| Very satisfied | 95 | 23.3 |
| Total Respondents | 407 |
| If you were to select a new compensation system, which one would you select from the following? | N | % |
| Equal pay method | 13 | 3.4 |
| Formula method (firm uses algebraic formula to determine income allocation) | 71 | 18.3 |
| Managing owner decides how to allocate income | 18 | 4.6 |
| Compensation committee (small group of owners) decides how to allocate income | 29 | 7.5 |
| Executive committee decides how to allocate income | 18 | 4.6 |
| All owners (meet as a group) to decide how to allocate income | 37 | 9.5 |
| Pay-for-Performance method (objective and subjective goals are predetermined for each owner at the beginning of the year and evaluated at the end of the year) | 140 | 36.1 |
| Paper and Pencil method (all owners recommend a base compensation for each owner including themselves) | 7 | 1.8 |
| Ownership percentage method (income allocate based on ownership percentage) | 14 | 3.6 |
| Eat what you kill (system only rewards individual production effort) | 17 | 4.4 |
| Other (please specify) | 24 | 6.2 |
| Total Respondents | 388 |
| Below is a list of compensation criteria that you may or may not use in your current system. Please indicate if each particular factor is used or not used in your current system. If it is used, please indicate how important the factor is to your current system. | Currently used | Not currently used |
| Book of business | 43% (155) | 35% (126) |
| Client or book gross profitability (cash collected less total time at cost to service client or book) | 23% (80) | 58% (198) |
| Community involvement | 19% (65) | 63% (214) |
| Cross-selling | 15% (52) | 68% (230) |
| Fees collected | 37% (129) | 40% (141) |
| Firm management responsibility | 43% (150) | 33% (115) |
| Industry experience/expertise | 13% (45) | 65% (218) |
| Managed charge hours | 30% (102) | 48% (164) |
| Mentoring and training employees | 20% (68) | 60% (206) |
| New business development (origination) | 35% (124) | 40% (141) |
| Ownership percentage | 40% (141) | 35% (124) |
| Personal billable hours (all hours that were actually billed to client) | 36% (126) | 39% (136) |
| Personal charge hours (all hours that were charged to work-in-process) | 32% (113) | 45% (159) |
| Professional involvement | 17% (57) | 60% (205) |
| Realization (net fees divided by gross fees) | 33% (115) | 44% (153) |
| Seniority within the firm | 21% (72) | 56% (192) |
| Technical expertise | 19% (65) | 58% (195) |
| Utilization (total charge hours divided by total work hours) | 13% (44) | 65% (215) |
| Total Respondents | 367 |
| Below is a list of compensation criteria that you may or may not use in your current system. Please indicate if each particular factor is used or not used in your current system. If it is used please indicate how important the factor is to your current system. | Very unimportant | Somewhat unimportant | Somewhat important | Very important |
| Book of business | 4% (13) | 5% (17) | 24% (85) | 26% (94) |
| Client or book gross profitability (cash collected less total time at cost to service client or book) | 2% (8) | 4% (15) | 21% (73) | 15% (50) |
| Community involvement | 4% (15) | 15% (52) | 20% (67) | 2% (6) |
| Cross-selling | 4% (14) | 9% (29) | 19% (66) | 3% (11) |
| Fees collected | 4% (14) | 5% (16) | 24% (83) | 25% (89) |
| Firm management responsibility | 3% (12) | 9% (32) | 39% (139) | 13% (46) |
| Industry experience/expertise | 3% (9) | 7% (24) | 26% (87) | 6% (19) |
| Managed charge hours | 3% (12) | 8% (26) | 28% (97) | 13% (45) |
| Mentoring and training employees | 2% (7) | 11% (39) | 24% (82) | 7% (23) |
| New business development (origination) | 1% (5) | 7% (23) | 28% (98) | 23% (82) |
| Ownership percentage | 9% (32) | 12% (41) | 23% (81) | 17% (61) |
| Personal billable hours (all hours that were actually billed to client) | 3% (10) | 7% (25) | 31% (108) | 18% (63) |
| Personal charge hours (all hours that were charged to work-in-process) | 5% (17) | 10% (35) | 26% (91) | 13% (47) |
| Professional involvement | 4% (15) | 15% (51) | 20% (67) | 4% (13) |
| Realization (net fees divided by gross fees) | 3% (10) | 8% (29) | 28% (98) | 16% (56) |
| Seniority within the firm | 8% (26) | 13% (43) | 20% (68) | 6% (19) |
| Technical expertise | 3% (9) | 8% (27) | 26% (88) | 10% (33) |
| Utilization (total charge hours divided by total work hours) | 5% (17) | 11% (36) | 19% (62) | 5% (18) |
| Total Respondents | 367 |
| How satisfied are you with the current criteria? | N | % |
| Very dissatisfied | 15 | 4.1 |
| Somewhat dissatisfied | 44 | 11.9 |
| Neither satisfied nor dissatisfied | 37 | 10.0 |
| Somewhat satisfied | 164 | 44.4 |
| Very satisfied | 108 | 29.3 |
| Total Respondents | 369 |
| How satisfied do you believe your fellow owners are with the current criteria? | N | % |
| Very dissatisfied | 8 | 2.2 |
| Somewhat dissatisfied | 41 | 11.1 |
| Neither satisfied nor dissatisfied | 48 | 13.0 |
| Somewhat satisfied | 181 | 49.1 |
| Very satisfied | 83 | 22.5 |
| Total Respondents | 369 |
| Which of the following criteria do you believe should be used in your owner compensation system? (check all that apply) | N | % |
| Book of business | 224 | 63.1 |
| Client or book gross profitability (cash collected less total time at cost to service client or book) | 214 | 60.3 |
| Community involvement | 147 | 41.4 |
| Cross-selling | 147 | 41.4 |
| Fees collected | 234 | 65.9 |
| Firm management responsibility | 294 | 82.8 |
| Industry experience/expertise | 129 | 36.3 |
| Managed charge hours | 183 | 51.5 |
| Mentoring and training employees | 192 | 54.1 |
| New business development (origination) | 261 | 73.5 |
| Ownership percentage | 168 | 47.3 |
| Personal billable hours (all hours that were actually billed to client) | 200 | 56.3 |
| Personal charge hours (all hours that were charged to work-in-process) | 137 | 38.6 |
| Professional involvement | 131 | 36.9 |
| Realization (net fees divided by gross fees) | 216 | 60.8 |
| Seniority within the firm | 95 | 26.8 |
| Technical expertise | 175 | 49.3 |
| Utilization (total charge hours divided by total work hours) | 99 | 27.9 |
| Other (please specify) | 22 | 6.2 |
| Total Respondents | 355 |
| How would you describe the way in which owner performance is currently evaluated? | N | % |
| Formal, written annual evaluation of performance | 34 | 9.3 |
| Informal, verbal (little written) evaluation of performance | 140 | 38.4 |
| Combination of formal and informal | 62 | 17.0 |
| There is currently no evaluation of owner performance | 129 | 35.3 |
| Total Respondents | 365 |
| Evaluation is mainly: | N | % |
| Objective | 45 | 14.7 |
| Subjective | 95 | 31.0 |
| Combination of objective and subjective | 166 | 54.2 |
| Total Respondents | 306 |
| To what extent . . . | Not at all | To some extent | To a great extent |
| Do you understand your firm’s compensation system? | 1% (2) | 7% (24) | 93% (337) |
| Does each owner understand your firm’s compensation system? | 1% (3) | 24% (86) | 75% (272) |
| Do you believe your firm’s owner compensation system drives performance? | 15% (56) | 53% (191) | 32% (115) |
| Total Respondents | 363 |
| Please indicate the extent to which you believe the current owner compensation system is designed to be fair to each owner in the firm. | N | % |
| System is not designed to be fair. | 31 | 8.5 |
| System is designed to be somewhat fair. | 145 | 39.8 |
| System is designed to be very fair. | 188 | 51.6 |
| Total Respondents | 364 |
| Please indicate the extent to which you believe the current owner compensation system is applied fairly to each owner in the firm. | N | % |
| System is not applied fairly. | 20 | 5.5 |
| System is applied somewhat fairly. | 126 | 34.6 |
| System is applied very fairly. | 218 | 59.9 |
| Total Respondents | 364 |
| To what extent do you believe setting individual owner goals contributes to higher levels of firm profitability? | N | % |
| Not at all | 26 | 7.2 |
| To some extent | 194 | 54.0 |
| To a great extent | 139 | 38.7 |
| Total Respondents | 359 |
| Do you believe team/firm-wide goals tied to owner compensation are a useful process for achieving higher levels of profitability in the firm? | N | % |
| Yes | 306 | 85.2 |
| No | 53 | 14.8 |
| Total Respondents | 359 |
| Does each owner in your firm have written goals? | N | % |
| Yes | 71 | 19.6 |
| No | 291 | 80.4 |
| Total Respondents | 362 |
| Do you believe each owner should have written goals? | N | % |
| Yes | 292 | 80.9 |
| No | 69 | 19.1 |
| Total Respondents | 361 |
| To what extent is your owner compensation system tied into achieving results of your strategic plan? | N | % |
| Not at all | 190 | 52.9 |
| To some extent | 135 | 37.6 |
| To a great extent | 34 | 9.5 |
| Total Respondents | 359 |
| How much would you like the firm’s revenue (top line) to increase over the next 5 years? | N | % |
| 1–5% | 12 | 3.3 |
| 6–10% | 64 | 17.8 |
| 11–15% | 73 | 20.3 |
| 16%+ | 211 | 58.6 |
| Total Respondents | 360 |
| How much would you like the firm’s profits to increase over the next 5 years? | N | % |
| 1–5% | 8 | 2.2 |
| 6–10% | 54 | 15.0 |
| 11–15% | 78 | 21.7 |
| 16%+ | 220 | 61.1 |
| Total Respondents | 360 |
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