Staff Performance Metrics in a Small Accounting Firm

Practice Management tax firm manager and employee

What is Performance-Based Pay?

Many tax and accounting firms are converting their staff from hourly rates or salary to commission-based payment systems. Commission is no longer found only in the typical sales environment. Instead, employers of all types are focusing more and more on their staff’s performance to evaluate pay.

The reasoning for this type of pay is equivalent to what is already happening in many firms. Performance reviews and evaluations of employees are being assessed constantly in the business world, so it is only logical to make this the central motivation for your employees and create a more efficient practice.

Pay for performance may help you, the employer, to assess your firm’s overall performance, as well as help assess the individual performance of your team members. As employees meet the goals of their employer, they will find rewards.

Pros:

  • Helps set tangible goals for your employees
  • Measures metrics regarding meeting monthly and/or yearly goals
  • Helps employers easily recognize when an employee should be rewarded or reprimanded
  • Gives staff goals to work toward – for example, a bonus, staff trip or conference

Cons:

  • Involves complex reporting
  • Requires training in order to understand the system
  • Entails change, which some employees may find difficult
  • Takes time to accurately keep track of system
  • Necessitates making sure your key indicators are appropriate

Performance Metrics

Every firm has different key metrics when it comes to staff. For example, a traditional or larger firm may decide that an employee’s billable hours is the key to their metrics, while a lifestyle-based practice may not want to tie the happiness and productivity of the firm to people working more hours. The Journal of Accountancy published “Pay Your Staff for Performance” that focuses on a base pay model, plus productivity and new business bonuses. While no harm is done in a new business bonus of 10 to 20 percent of first-year revenue, few staff members will be the right personality fit for the sales’ needs of that request. The downside of this model is the lack of work-life balance. This is why converting to value pricing may be imperative for a lifestyle-based practice.

Common metrics or key performance indicators (KPIs) used per staff member include:

  • Bookkeeper dollar-per-hour production rate
  • Monthly revenue
  • Project backlog
  • Billable hours or amount per billable hour
  • Drops reason (e.g., closed, fired, price, service): 12-month rolling average
  • Client count
  • Realization rate (the difference between what you record as time and what percentage of that time is paid by the client)
  • Meaningful client monthly contact

Case Study: Meyer Tax Consulting LLC

I started my own CPA firm at the age of 27 and grew it quickly. Currently, Meyer Tax Consulting LLC has a team of six employees, including myself, all of whom work remotely from their homes.

I wondered how I could track the efficiency of our employees and make sure they were all working to the same standards. The staff’s compensation was a base rate of about 50 to 70 percent of their pay plus a discretionary seasonal bonus, so I decided to start researching and looking more into paying for performance.

The first thing required to create a performance-based pay system was to establish what tasks were necessary as the backbone of the firm; client needs were on top of the list. I decided that the two most basic and important tasks for Meyer Tax would be determining how many returns need to be done per month to evenly space busy season and completing recurring bookkeeping. Then, I evaluated deeper into the practice to decide which other things were essential to the business and should be tracked. This included a standard response time for client inquiries and tax return turnaround time.

Deciding where and how to track this new system with the capability of storing all of the information per employee was the next step. I decided to first import all of our client information into Microsoft Excel and sort them by project manager or by the employee assigned specifically to that client. Once each employee had their own spreadsheet, they began recording information about each project/return, including client name, duration of the project, hours worked and notes about the job.

In the future, I plan to expand this tracking and use the system to reward our employees with bonuses and company-sponsored retreats, conferences and trips.

Some problems I encountered included the lack of reportable information to export from our project management system (Jetpack Workflow) and time tracking systems (QuickBooks® Online and MinuteDock), and the countless hours we would each have to spend tracking these internal metrics. As QuickBooks Online expands to add project management tracking features, I plan to revisit the measurable metrics, but at this time have decided to stick with our current discretionary bonus system and do one-on-one meetings with team members at least once a month.

Case Study: JR Martin CPA and Associates

Juli Martin, owner of JR Martin CPA and Associates, fully implemented performance-based pay metrics a couple of years ago. Her firm was well established with almost a dozen employees who work from a central office location in Redding, Calif. While the firm can work completely remotely, Juli finds that employee morale is better managed together as a team. She works a couple of days per week from home, but spends most of her time in the office.

Her staff is hourly, but she wanted to test the waters of performance pay. Once her team made the switch, using many of the metrics mentioned in this resource guide, an unexpected result occurred. Instead of seeing increased productivity, the staff spent countless hours in Juli’s office expressing concerns about why they didn’t meet a particular KPI for the prior month or reasons they should still be paid.

After months of seeing this downward spiral in morale, Juli converted her team back to a base salary and discretionary bonus. It surprisingly worked out better for the team not to know specifics of how or when their bonus would be calculated. Juli assesses where each team member stands by standardizing one-on-one meetings to assess personal goals.

She continues to use Excel to track overall firm goals such as clients lost or gained, but not at the micro level needed for performance-based pay.

Tracking Metrics is Key

While there is pressure from other industries to convert to more commission-based pay based on metrics, there is no exact method to applying pay-for-performance metrics in a tax or accounting firm. Each firm must evaluate what their culture values most, and watch out for unintended consequences of measuring those values. Also, depending on the software available to track work, it may be very easy – or extremely difficult – to calculate KPIs.

Some firms may also choose to track external metrics like number of leads or client closes manually in Excel, but not overly focus on internal metrics. In any case, it is important to collect feedback consistently from the staff via one-on-one meetings, as well as from clients in surveys.

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