8
Accountability: Trust but Verify

This chapter was coauthored with Bryan Shelton, senior consultant at The Rainmaker Consulting Group.

“Great companies have high cultures of accountability….”

~ STEVE BALLMER, MICROSOFT

One definition of accountability is an obligation or willingness to accept responsibility or to account for one’s actions. Accountants, of all people, should be able to account for their commitments and behavior. One of the worst things that a leader can do is avoid responsibility for his or her own mistakes. In fact, great leaders take responsibility for their subordinates’ mistakes. The great Alabama football coach Paul “Bear” Bryant would say, “If it was successful, the team did it. If it failed, it was my fault.” That’s a way to build serious loyalty in your staff or team.

As Bill Hermann, former managing partner of Plante & Moran, PLLC, says, “I think a wonderful trait in a leader is to not worry about grabbing the credit. Give the credit out liberally. If something goes wrong, take the blame.”

In this chapter, we’ll discuss why accountability is so important in business, what accountability is and isn’t, and how to move from a low- to high-accountability environment. At the end of the chapter, you will be introduced to some tools that will enable you to implement an accountability culture into your firm with a minimum of pushback from your team members and partners.

In some accounting firms, it is mainly the partners who resist accountability. Some partners’ attitudes are as follows:

▴ I’ve made the partnership and am totally responsible for myself and don’t want anyone else to hold me accountable.

▴ Let’s implement an accountability system for everyone but the partners.

▴ The managing partner’s role is to manage everything else except the partners.

My experience has been that the only method for creating a high-accountability culture is for the owners to lead it. If the partners opt out, so will others. The result will be a ragged and, most likely, failed accountability initiative. As you are reading this chapter, think about your own firm and how these elements apply first to your partners and then to your team members.

Why Is Accountability So Important in Business?

First, consider the economic impact. It’s estimated that a lack of accountability costs corporate America tens of billions of dollars each year in terms of absenteeism, rework, missed deadlines, conflicts, and misunderstandings among staff. Accounting firms lose millions more when they lose loyal clients due to poor customer service. In our consulting practice, we’ve encountered firms with over 50 percent of their worked hours as nonbillable and unaccounted for. Most firms are challenged with managing the nonbillable time to the tune of 16 percent to 30 percent wasted. Without good accountability, an accounting firm with $5 million in annual revenue might be wasting as much as $800,000 per year in nonbillable time for which there is no accountability. A $50 million firm could be wasting up to $8 million per year.

While he served as CEO of the megaregional firm Moss Adams LLP in Seattle, WA, Bob Bunting learned that partner accountability is essential.

The biggest problem that every managing partner has, in my opinion, is accountability from his own partners. Most new managing partners don’t have the personal or organizational power to be an absolute autocrat.

To get accountability, you need communication where you put the problem in front of somebody in a nonpejorative way, and you get them to agree to what they’re going to do about that problem. Then, you have some kind of a follow-up mechanism that says, “We’re going to discuss your progress on this change you’ve committed to in 90 days.”

In many accounting firms over the last decade, it seems that the organizational pendulum has swung from authoritarian to permissive. I’ve been in dozens of firms in the last five years whose dominant founding partner has retired, and now, the firm is being led by a very permissive leader or, even worse, a committee. Firms have been caught by a double whammy of a shortage of qualified accountants and a mentality of entitlement in younger generations. These forces have caused some leaders of accounting firms to cater to the whims of the younger employees. Creating a great place to work takes good judgment from the leaders regarding the proper amount of flexibility, so that people are dedicated and engaged in their profession.

Although young employees bring vitality, technology savvy, and new perspectives to your firm, many of them will benefit from the structure that a high-accountability environment can bring to their lives. The transition from the relatively unstructured university life to the highly structured boardroom of many of your clients is difficult for many people.

In chapter 10, “Empowerment: The Secret to Exponential Growth,” we will delve into empowerment. In that chapter, I will cover many of the judgments necessary to know the right amount of authoritarian leadership or the right measure of permissiveness. We’ll discuss micro-managing, abandonment, the experience of your team members, and the risks involved in their assignments in order to create a good formula for leading.

Some owners have said to me, “We selected him as managing partner to manage everything except us partners.” When I hear a statement like this, I interpret it to mean, “We will give lip service to accountability, but that is all. My personal preferences supersede the needs of a growing firm. If we wanted accountability, we would accept that leadership from our managing partner.”

It is difficult to lead and manage accountability in professional firms. Professional firms must manage both the performance of their professional responsibilities and also the profitability of their businesses. Many partners or owners of firms resist attempts by their managing partner to instill accountability, but they will follow a great leader.

It has long been reported that a sign sat on President Harry Truman’s desk in the White House that read, “The buck stops here.” Over the last 70 years, this concept of personal accountability—especially in business—has lost its popularity.

Accountability in your firm means that partners and staff members can count on one another to keep performance commitments. Accountability can result in increased synergy, a safe climate for experimentation and change, and improved solutions because people feel supported and trusted. All of these positive results create higher employee morale and satisfaction. Those who believe that you can hold staff members accountable while partners do what they wish also probably believe in the tooth fairy.

Accountability and productivity are about getting things done—all the right things—accurately and on time. Employers invest heavily in their employees, from hiring costs to payrolls, but how many are getting all the results that they could? In accounting firms, accountability for billable hours is fairly easy compared with that portion titled nonbillable. Accountability in the nonbillable category is essential for the most successful firms. Blaming and finger-pointing are all too common in business today. How many times do employers hear excuses like these:

▴ It’s not my fault the manager didn’t review my work for two weeks.

▴ The marketing director just wasn’t able to attract any business.

▴ My partner dropped the ball.

Accountability Is the Opposite of Permissiveness

The lack of accountability in accounting firms protects the worst partners and employees and hurts the best performers. If you don’t believe me, tomorrow, ask five employees who the worst performers are in your firm. They know, and they’re also likely to add, “Why doesn’t someone do something about it? It’s hurting our client service and profitability. He’s just skating, and the rest of us are paying the price.”

One of Chris Allegretti’s, CEO of the regional firm Hill, Barth & King, LLC (HBK) in Boardman, OH, mottos for management is praise publicly; criticize privately. By taking every step with integrity, Chris continues to run a successful company and manage a productive staff. “Did you do what you said you were going to do? One of the core principles of being a leader is having that integrity. So, ultimately, what it gets down to is no one cares about the activity. They want results. You can’t ask people to do the right things, and then, ultimately, allow people to do some wrong things and not deal with them.”

Increasing Accountability

How do we go about changing this culture in our own firms? First, let’s consider what accountability means and then define how to build a culture that encourages accountability. If you walk into a room and ask 10 people what accountability means, you’ll likely get 10 different definitions. To some, it’s something you make people do, as in holding people accountable. To others, accountability means accepting responsibility.

In my opinion, accountability is not something you make people do. It has to be chosen, accepted, or agreed upon by the people within your firm. People must buy into being accountable and responsible. For many, this is a new, unfamiliar, and sometimes uncomfortable way to work. Learning how to become accountable involves an element of discipline. Most importantly, individual purpose and personal meaning come from accepting responsibility and learning to be accountable.

Bob Hottman, CEO of the top-100 firm Ehrhardt Keefe Steiner & Hottman PC (EKS&H) in Denver, CO, believes, “Holding people accountable, having empathy, and listening are critical elements in a good leader. No matter how poor your innate leadership skills are, you can learn to do all those things better.”

Accountability means being responsible for something. In most businesses, accountability opens the door to ownership, and employees acknowledge that they’re responsible for some aspect of the business. Accountability can be understood better when you see your firm as a system of individuals linked by mutuality and trust, each taking personal responsibility for achieving something meaningful: the vision, mission, and values of your firm.

In order to establish accountability, you need to have clear and agreed-upon expectations for performance.

Measuring Accountability

Holding people accountable is really about empowerment and choice. When people have more choices, they learn to be more responsible. When they become more responsible, they can earn more freedom. By being accountable, they earn the trust of partners, managers, and other staff members. When they are more accountable, they understand their purpose and role within the firm and are more committed to making things happen.

Jim Metzler, vice president of Small Firm Interests at the AICPA, believes that a big issue in the accounting profession is individual measurements versus group measurements. “So many firms think it’s about Bill’s book of business, Jim’s book of business, Jim’s billing, Bill’s billings versus the group,” says Jim. Jim thinks it should be about the tax department, the accounting department, or the audit department.

Jim says

I’ve been in many a firm where the whole firm can be down on the bottom line year to year, yet certain partners make more money than they did the prior year. This goes to the saying, “There can’t be any winners on a losing team.” So, moving oneself from individual to group and putting some risk in the group, that’s what’s needed to break through to the other side.

I live in a highly-accountable organization: the American Institute of CPAs. I have observed some accounting firms switch from low accountability to high accountability. What happens is we see better results every single place we go where that has taken place. I’ve never seen the results decline from more accountability.

When partners struggle to reach business objectives and cannot identify why employee performance is not succeeding as planned, it may be time to consider more accountability. Partners of firms come to realize that their success in areas such as client service, employee retention, reliability, and overall goal achievement is directly associated with accountable employees.

Although Ken Baggett, co-managing partner of the national firm CohnReznick LLP, celebrates his employees and their hard work, he also expects a high level of performance from each of his staff members. “Most people make a mistake because either there is an emotion or a time line that drives them. Our workload can tempt people to be careless. The first time this happens, the conversation is stern, but it’s a conversation. The second time, it’s a warning. The third time, it’s an action,” he says.

Many large businesses use a ranking system to promote high-performing staff members and distinguish them from the poorly-performing employees. The goal is to replace the poor performers with more promising, motivated employees. For many years, General Electric has identified the top 20 percent, the middle 70 percent, and the bottom 10 percent of its 100,000-plus white-collar employees. The bottom 10 percent are given a short time to improve. Former GE Chairman Jack Welch said those workers would eventually be fired anyway, and delaying the inevitable until they are midcareer is “a form of cruelty.” Rick Anderson, CEO of the megaregional firm Moss Adams LLP in Seattle, WA, shares, “Some people are able to scale with the business because they recognize the need to do things differently, seek input and training from people both inside and outside the organization.” Others don’t.

Gordon Krater, managing partner of the megaregional firm Plante & Moran, PLLC, in Southfield, MI, says

We set goals, measure results toward our competencies. We will lay out a path for you to improve on your competencies, and we set result measures. You can always get better. We have to earn our fees every day. What does that mean? It means that when I am going to meet with a client, I am not just going to show up. I am going to be prepared with a point of view.

How Does Individual Responsibility Factor Into a Group Setting?

Not all owners are capable or willing to follow through with their commitments to their fellow owners. Some people mean well, but they take on more than they can hope to accomplish. They intend to honor their commitments but get distracted by other work and don’t have a system to reinforce their commitments to themselves and others. Others simply have built a habit of agreeing to do something and then not following through because they do not know how to do it (and they are often afraid to ask for help). Most partners I’ve met are like the first two examples. Also, some will always be loners, no matter what kind of training you give them. Unfortunately, a few partners in our profession have a passive-aggressive approach to authority, leadership, and their teams.

More than 90 percent of accountants can work well with other people in a team or firm. The ability to function as a member of a team is a critical component of success in business today. As a team member, failure to follow through on commitments can cause the team to fail and that particular team member to become a weak link. A good performance system motivates employees and helps them understand that their personal accountability means success for the entire firm and that each employee’s own personal accountability is required for the team to succeed.

Once you understand the kind of partner you are dealing with, then you can determine the best method for gaining true accountability. Partners who take on too much or those who haven’t been taught well can be trained over time to become successful. Those who are, by nature, loners or passive-aggressive toward leadership must be isolated from the team because they will infect others.

David Sibits, president of the national firm CBIZ Financial Services in Cleveland, OH, shares

When I became managing partner at Hausser back in 1991, we were pretty much a collegial society, which is code for low accountability. We had too many partners, and those partners really didn’t make much of a living. Firm profitability was okay, but it was spread among so many people that it looked pretty weak. We had a system that was primarily driven by tenure versus anything else. Beginning in 1992, we began to use scorecards and set specific goals for individuals. We implemented a system with equal base compensation. Everything else was rewarded based on performance. In about 6 years, we went from a firm that was marginally profitable to one of the top 2 or 3 firms in the country. We were a bottom line prepartner comp in the 47 percent range. It was all the result of increased accountability. Now, that didn’t happen overnight. We had many difficult conversations with partners who struggled with being governed, but we fought through all the temptations to revert to the low accountability of the past.

Both partners and employees benefit from an environment in which all staff members embrace individual accountability. Partners will see the increased productivity that comes with setting deadlines and being clear about expectations and responsibilities. Staff members will take more ownership, feel improved job satisfaction, and experience more success.

Tony Argiz, founder, CEO, and managing partner of the megaregional firm Morrison, Brown, Argiz & Farra, LLP, in Miami, FL, uses a unique accountability tool at the end of each year.

June is a critical month for us because it’s our year-end, so we try to convert our accrual earnings to cash. So, we really get a lot of team building and calling clients and picking up checks. I mean we do a clean house. Our receivables by the end of this month are the lowest that they’ll be the rest of the year because we just clean house.

Unless its cash it’s not worth a damn.

What Should Partners Know About Performance Measurement?

Imagine a good performance measurement and accountability system as a road map to better client service, better compensation for the productive staff members, and bench strength when it comes to succession of leadership for your firm. Setting quantitative and qualitative expectations and behaviors for staff members can help them achieve greater levels of success. Employees want to know what road to travel, the tasks that they need to accomplish, and the milestones along the way. When expectations change or are unclear, it’s like running a race without a finish line. The result could be burnout, lack of motivation and purposeless effort, or just mediocrity.

Initially, performance measurement is not welcomed by employees, partners, and staff members alike. But once partners and team members take more ownership of tasks, personal accountability emerges, stress lowers, productivity increases, and job satisfaction improves.

When partners are committed to accountability, change happens not because the leaders mandate it but because individuals are energized and motivated to approach their jobs more effectively.

Unfortunately, the word accountability often connotes punishment. When firms use accountability only as a big stick for punishing employees, fear and anxiety permeate the work environment. Staff members are afraid to try new methods or propose new ideas for fear of failure. On the other hand, if approached correctly, accountability can produce positive, valuable results.

Positive Results of Performance Measurement

A well-executed performance management program can lead to positive results, including the following:

▴ Higher morale and team member loyalty

▴ Improved performance

▴ Increased feelings of competency

▴ More staff member participation and involvement

▴ Increased team member commitment to the work

▴ More creativity

These results occur when staff members view performance measurement programs as progressive methods of completing work. Using a performance scorecard system, which we’ll discuss later in this chapter, involves team members in setting goals and expectations. In this case, staff members find that they understand expectations better, are more confident that they can achieve those expectations, and perform at higher levels. Improved results also occur when team members don’t associate accountability with negative consequences

Implementing Accountability for Positive Results

Initial employee reactions to performance measurement will be mixed. Some people will embrace accountability, and others will resist. Even those team members who are highly productive may resist because they may see it as adding administration and nonbillable work to their crowded agenda. For some of these reasons, we have found that the best way to implement an accountability or a performance measurement system is to approach it incrementally. Beginning with the owners of a firm enables you to change the tone at the top and models the responsible behaviors for others to witness.

Leaders can practice accountability for positive results by following good performance management principles. Leaders need to

▴ involve employees in setting objectives and give them the authority to accomplish those goals.

▴ coach team members when they need help and support them in all aspects of the job.

▴ monitor progress toward goals and provide feedback that includes credible, useful performance measures.

▴ provide the training and resources that employees need to do the work.

▴ recognize employees for good performance, both formally and informally.

The very best accountability systems are those that help hold people accountable to their own growth goals. In our Rainmaker Academy training course, we use a credibility index (CI), revenue action plan (RAP), and results report as our accountability tools. Participants set their own plans, submit their RAPs to us, review the RAP with their supervising partner, and have a check-in with a coach approximately two months later. During the coaching check-in, participants report their follow-through on the requirements of staying in The Rainmaker Academy program. The coach records their responses in a CI. Students know that if they fall below 90 percent credibility, they will be asked to leave the program. Then, two months after that, they report results against the RAP. This is the very best way to create accountability: help hold people accountable to their own goals.

These accountability tools were designed by us to measure the behavior change and results of our training programs. The CI is a tool that simply measures approximately 20 disciplines that participants commit to do. For example, read the preassigned book, turn in your RAP, follow through on your 21 face-to-face appointments, and so on. We have found that activity will always precede results. In order to ultimately get results from their Rainmaker Academy experience, participants must make appointments and use their learning.

The RAP is a more detailed tool that students use to plan, track, and communicate their sales call activity and results. We expect students to make 21 face-to-face sales calls between classes and have found that the ones who get big results are the same ones who make the calls. Students who do not make their planned calls are always the low performers in each class. During the first year of the 2-year Rainmaker program, we place more emphasis on the activity level than results because we know that the participants’ follow-through on the activities will lead to results in year 2.

Accountability Through Measurement: Scorecards and Performance Pay

How do you get your employees to view the company in the same way as an owner? There is a large disconnect between how an employee views a company and how an owner views it. Owners worry about profitability, top and bottom lines, the company’s short-term and long-term success, employees, and the list goes on. Employee views are typically much more self-motivated; they want to know when they get their next check and how they can receive a pay raise. In some examples, when owners do work, they are 50 percent more productive than employees. They have more invested, psychologically and financially, and simply care more. So, how do we bridge that gap in views? One way is to implement a performance pay system in which employee bonuses are tied to organizational success.

Here’s a six-step framework to build accountability in individuals:

1. Decide what’s important for each person.

2. Set objectives to grow.

3. Align systems.

4. Work the plan.

5. Innovate purposefully.

6. Step back and appraise performance results.

One of the keys to building a culture of accountability is to find a way to lead people without ruling them. Leaders have to hold followers accountable, especially other partners. Many followers fail to focus on their highest priorities and get lost in the minutia of their everyday work lives. They work by default; their training and experience prepared them to be an accountant. It is the leader’s role to provide systems for accountability and demonstrate to his fellow owners that their accountability and credibility are in the best interests of the firm. If integrity is a core value of the firm, the leader must challenge his partners to live up to this core value.

Ways to Establish Staff Member Accountability

Anyone who has ever bought a house knows firsthand that homeowners have more reasons to maintain and improve their dwellings than renters. For a homeowner, there is no landlord to call when something goes wrong, and the homeowner is compelled to make improvements to maintain and boost property value. Can the benefits and responsibilities of ownership also apply to an individual’s skills? The answer is yes. Many firms are now proving that individual skills ownership has its advantages.

The skills of employees may account for 85 percent of a company’s assets. Employee skills determine the speed and success with which projects are completed, objectives are met, and services are delivered. However, as any partner knows, it is the individual employee, not the company, who has ultimate control over how well skills are maintained and developed. So, how can partners motivate employees to improve critical skills and take greater ownership of their career development? The answer is relatively simple: give employees the means to objectively measure their skills, identify areas of improvement, and provide access to learning resources to close skill gaps.

Progressive firms are implementing skills measurement systems that dramatically reduce the burden on partners to create individual career development plans. Instead, they are making employees more accountable for their own learning and development based on objective feedback from skills assessments. There are three strategic components to this approach:

1. Provide objective metrics for measuring skills.

2. Establish accountability.

3. Foster continuous improvement.

Simply telling the individual that he or she is responsible for critical skills provides little in the way of actionable information. Give the same employee a resource for assessing particular skill sets from an extended selection of subjects, however, and the equation changes. The employee can take stock of a particular skill, assess the value of that skill, and identify how and where that skill can be improved.

To make skills ownership possible, use objective metrics, and demonstrate how the metrics apply to a range of critical skills. An effective measurement system delivers assessments to employees on demand. The employee can access the system online, select a skills assessment, and complete the test for immediate results. The system calculates scores based on the employee’s answers to test questions—questions that are selected dynamically to test the user at his or her skill level. Employees achieve a detailed view of their critical skills, with the ability to repeat assessments and track growth and improvement.

Scott Dietzen, managing partner, Northwest Region, of the national accounting firm CliftonLarsonAllen LLP in Spokane, WA, says

A leader must be able to communicate clearly about what the nonnegotiables are and how we should respond and be respectful to others. We have found the balanced scorecard a valuable tool. The first step was just getting people to do a scorecard, and the next step was holding periodic scorecard meetings. We began by thinking that if we did 10 short meetings, giving more rapid feedback, it would work. I kept telling our HR department, “Don’t get hung up with the fact that it isn’t perfect. Adapt a little bit more.” Over the last 6 years, we’ve refined it to the point that we have very clear goals, and 4 times a year, the person goes in, and they have very specific instructions to comment on the progress related to their goals.

Establish Accountability Through Communication—Set Expectations and Reinforce Success

Although providing employees with the tools to measure skills is beneficial, smart firms are communicating expectations to translate “nice-to-have” measurement tools into “musthave” skills improvement objectives. How can employee skills ownership be translated to skills accountability?

There are two answers: set skills requirements and a clear communications process. An individual employee, for example, may receive a selection of skills to track, based on that employee’s job-role function, with assessment due dates and assessment score objectives. With an objective measurement system in place, the employee has the ability to take assessments, access learning resources as needed, and take repeat assessments over time to track improvement until baseline objectives are met. The result? The measurement system gives the employee the ability to prove skills ownership, as well as providing the responsibility for skills upkeep.

Accountability also requires a documented, repeatable communications process. Without a formal communications plan, skills initiatives run the risk of falling into disuse. From program introduction to the assignment of skills assessments, the delivery of organization-wide results, and the promise of employee incentives, communications play an essential role in an ongoing process for establishing and reinforcing skills accountability.

Accountability Through Measurement

An Introduction to Measuring Performance

It’s no secret that accountants love hard numbers; our businesses thrive on keeping accurate records and reporting our findings to our clients. Why then, with all our love for numbers, do we not keep, maintain, report, and use them when it comes to our employees? This section will give you the tools necessary to implement a performance measurement system that helps you create a culture of accountability in your firm.

Several dimensions are relevant in measuring human performance, including quality, quantity, timeliness, and accuracy. A measurement system can be created by taking the organization’s future goals and strategic initiatives and aligning them with each employee’s performance. Once a performance measurement system is in place, any size firm can improve employee performance and increase the bottom line. But first, you must determine what needs to be measured.

The following four critical guidelines will help you in the art and science of measuring performance:

1. Tie measurement to a specific performance. Defining exactly what you want tells the performer what you expect. A measurement system will fail if the performer is left guessing. For example, having a measure such as “wanting more business” from a partner leaves the partner with a lot of questions. Tightening up the statement a little by saying “$50,000 in business” is better because, now, at least the partner knows that a productivity goal has been set. When you say, “Cross-sell $50,000 of services to your top 10 existing clients,” the partner knows exactly how to focus his or her efforts.

2. Focus on relevant performances or results only. Measures should consist of performances that produce business results. If the measure does not directly produce results related to the business, then you should reexamine the importance of the measure. Examples of relevant measure include billable hours, first-pass accuracy, productivity, realization, and skill development in a niche or new area. Although wearing proper attire might be important to the company image, it rarely affects the bottom line directly, so it should not be included in a performance measurement system.

3. Focus on all relevant performances of a performer. There is a saying in the study of measuring human performance: you get what you measure. This is especially true if an incentive or bonus system is tied to the measurement system. If the focus of a measurement system is a single behavior, then that behavior will be produced, but most employees are responsible for multiple results. Measuring all relevant performances tells the employee that all aspects of the job are important to the organization’s vision, not just one.

4. The measure must be in the performer’s control. A measurement system must avoid measures that rely on someone else’s behavior or results. For example, measuring charge hours and setting up a charge hour goal cannot be the only financial measure for staff accountants. Although it is important, this measure is not completely in the performer’s direct control. Staff accountants are not responsible for a book of business; they work on what is handed down to them by partners. When staff accountants do not reach a charge hour goal, there are at least two possible reasons why:

a. The person is slow, spending too much time on nonbillable work or spending too much time doing something else not related to the job.

b. The partner is not providing enough work for the staff person.

Making sure that the performer has as much control as possible over the measure will allow both the person and organization to have a clear view of the person’s performance.

These are the critical guidelines for a measurement system, but keep the following items in mind, as well. The closer the line of sight the performer has to the result, the more likely it will affect the performer’s behavior. This goes back to the fourth control guideline. The immediacy of the consequence is important in affecting human performance.

When you are ready to begin using a measurement system, be sure to confirm that the focus of the system is correct. Remember, you get what you measure. When you are training new employees, focus on behaviors, but with an established performer, the measurement system should focus on results.

After Measuring, Now What?

Whenever a new measurement system is put into place, performance improves. However, this increase in performance is short-lived if management is only measuring performance. To maintain and continue to increase performance, you must ensure that your firm culture includes these three values:

▴ Goal setting

▴ Feedback

▴ Coaching

Setting Goals

Goal setting clarifies what’s expected from a performer and provides a goal to strive for. A simple way to set performance goals is to have a regular meeting in which a partner and an employee develop an individual game plan. A game plan consists of three to five initiatives that the protégé will work on for a period of time. Examples include charge hours goals, average realization rates, niche or skill development, obtaining or maintaining a CPA, or the management or development of other lower-level employees. The number of initiatives should depend on the complexity of the tasks or time requirement needed to complete each one. If initiatives require more time than is available, then use milestones to gauge completion. Be sure to consider the firm’s overall strategic vision and the employee’s interests when you set the goals.

Frequent Feedback

Setting performance goals provides employees with information about the organizational needs, but providing employees with frequent information on how they are doing is key to improving performance. The frequency of feedback matters. The more frequent the better because it gives the employee time to adjust performance before negative consequences. Some good rules of thumb include the following:

▴ Start by giving feedback frequently, and then, fade it back to an easily manageable time frame. For example, start monthly; then bimonthly; and later, every four months.

▴ Give feedback on relative measures or initiatives only; this will keep the feedback objective.

▴ Concentrate on the measures that need constant feedback first. Charge hours, realization, and utilization rate feedback should be given every time.

▴ Deliver individual feedback individually and group feedback as a group.

▴ Develop a report; let the employee see his or her performance relative to the goal and the last time feedback was given.

Coaching

When your employees know how they should be performing and how they are performing, you should provide coaching or training if they are unable to perform at an appropriate level. The employee may lack a skill, use outdated techniques, or lack experience to know the tricks and tips for using your system. By looking at the data and reviewing it frequently with the employee, you will both see the areas that need attention. You can work together to take appropriate action and prevent either the need for you to fire someone or have the employee quit out of frustration.

Neal Spencer, former CEO of the megaregional firm BKD, LLP, in Springfield, MO, describes the partner coaching process at BKD, LLP

Our accountability system is spelled out in our Partner PRIDE Performance Assessment Living PRIDE and Delivering Value document. This is the annual partner performance discussion between partner and office managing partner where the discussion centers around the five attributes of Partner PRIDE: client service, marketing, staff development, succession planning, and good citizenship. For each attribute, there is a paragraph that describes a model BKD partner. The partner will rank themselves 1–5, A “3” meaning, I’m performing at the level expected of the typical partner; a “1” meaning the partner performance is unacceptable; and a “5” meaning an exceptional, rare performance. The managing partner in the office will also evaluate the partner independently and close any gaps during the discussion.

Additionally, during this process, the partner and managing partner review goals established during last year’s session and agree on goals for the upcoming year, as well as start to set expectations on compensation increases or decreases for the next year. Every firm can utilize a standard system or prepare a unique system like this one, but regardless of your system, the most important element is the face-to-face discussion.

In this way, unique to BKD, LLP, people rank themselves, and their supervisors give them specific feedback and coaching. Every firm can utilize a standard system or prepare a unique system like this one.

To read more about coaching, training, and mentoring see chapter 7, “Teaching, Coaching, and Mentoring: Multiplying Your Leadership.”

Performance Scorecard

A system that I like to use is called the performance (balanced) scorecard (see figure 8-1), which has also been referenced by several of the leaders quoted in this chapter. What makes the scorecard such a useful tool is that it takes different measures important to each individual and gives one overall performance score. The scorecard is divided into the following four broad categories:

▴ Financial

▴ Internal or oerational

▴ Business growth

▴ Learning and growth

Within each category, individual and companywide measures can be entered and tracked by entering a minimum level of performance (shown as 0) and a goal level for each measure. Once this is established, interim levels of performance or results are filled in from the base to the goal. The performance of each measure falls into the scorecard (shown as yellow highlighted cells). If the performer exceeds the goal level of performance, additional credit can be earned to reward performing better than the goal level.

The scorecard score is determined by multiplying the multiplier by the weight of each measure (shown in the second to the last column, always adding to 1.00) and then adding all the measure’s individual scores together. For example, charge hours for employee X were 983, putting performance into the interim level of 956 (highlighted yellow). The score for that measure is determined by multiplying the multiplier by the weight o(85 x 0.20 = 17). The weight of each measure is determined by the employer. The higher the weight of a measure, the more influence it has on the overall scorecard score, making it more important to the employee. Bill Hubly, founder and managing principal of Corbett, Duncan & Hubly, PC, was an early adopter of the scorecard system.

We started a balanced scorecard system some years ago, and in the beginning, it really challenged us. We decided we’re going to have specific, granular goals on these scorecards that you need to achieve. And we’re going to tie the compensation to these goals. And if you’re not getting it done, we’re going to hold you accountable, and it’s going to be more of a forced accountability. And you know what, that’s just the way that we need to move the organization. Today, leaders have become more self-accountable. They understand why it’s important.

Most systems evolve over time to where people are holding themselves more accountable. Once Bill got the buy-in at the highest level, he started setting some firm objectives. Those firmwide objectives were discussed at partner meetings and firm staff meetings.

Bill goes on

Then, we took the objective setting down to the department level. If I could go back and do it again, I would probably roll it out at a firm and department level at the same time and get that complete leadership team working on understanding the scorecard and the objectives and the terminology at the same time to shrink the learning curve on it. I would start with one or two key objectives in each of those areas because you’d be able to keep people more focused.

Figure 8-1: Performance (Balance) Scorecard

Performance Pay

How is the scorecard used in a performance pay system? The scorecard score can be used as a percentage of a total available bonus per employee (bonus = bonus potential × (scorecard score/100)). For example if employee X had the ability to get a $10,000 bonus this year, based on the scorecard, employee X would receive 96 percent of the available bonus, or $9,600.

Bonus = $10,000 × (96/100)

Bonus = $10,000 × .96

Bonus = $9,600

Where does the bonus pool for each employee come from? There is no correct answer for this question; it depends on the firm and what you are willing to set up. Bonus pools can be based on individual employee profitability, group or team profitability, or organization profitability. For partners, the bonus pool can be created using a percentage of firm profitability. How much incentive pay is needed to be effective? Research has shown that approximately 3 percent to 20 percent available incentive pay is needed, depending on the complexity of the system and delay of incentive payouts. This may seem high, but when there is a large possible incentive payout, high annual “I like you” raises are no longer necessary.

Phil Holthouse, founder managing partner of the top-100 multioffice firm Holthouse, Carlin & Van Trigt LLP in Los Angeles, CA, endorses the performance compensation method. “In our view, a lot of that comes back to how compensation and profits are allocated; that is big on accountability. So, it’s a core part of our strategy that our system reinforces and rewards highly motivated, productive people.”

When firms implement a pay for performance system, several things typically happen. First, employees become interested in how the company is doing and what can be done to improve the organization’s success. Second, some people quit. However, these are typically low-performing individuals who you might have wanted to get rid of anyway. Third, high-performing people become more loyal to the company. When individuals are rewarded for their efforts, they are more likely to stay. Finally, the organization becomes more successful. When all employees think like owners and have stakes in whether the company does well, they will find ways to make the organization as successful as possible.

Keeping a Well-Rounded Perspective

As critical as accountability is to a successful firm, it can be used like an iron fist to the firm’s detriment, as well. Bill Hermann, former managing partner of Plante & Moran, PLLC, says

Plante Moran isn’t a very hierarchical organization. We don’t have a lot of rules, and we’ve resisted a lot of guidelines. While accountability is not a bad word, the real word is selfaccountability, in my mind. That’s where the real power is. I’ve heard that term “you get what you measure.” I understand that you need to measure. But I also think if you are not careful in how you do it, you may get only what you measure. Accountability loses something when it becomes too hard-wired or it’s too numbers driven.

Conclusion

Accountability fits very well inside a firm where there is also a high level of empowerment, as we’ll discuss in the next chapter. Accountability is not simply for the underperforming team members. High performers work more effectively when they are held to their own high standards and also when they know that their performance is not producing a result that allows low performers to ride the system. Accountability works best when goals are written, protégés set their own stretch goals, and the leader provides an environment for success, coaching, and resources for the team.