1. Nexia International Admission, evaluation and remuneration of partners in an accountancy practice 22 September 2011 Jeremy Boadle Nexia International Board Member Smith & Williamson, UK, Executive Board Member jeremy.boadle@smith.williamson.co.uk

2. Contents Admissions – making partner Two main routes to equity partnership The process of admission The practical things… Reward arrangements Components of remuneration Performance management and evaluation Key performance criteria Expulsion, de-equitisation and retirement

3. Admissions - making partner Career ambition for most in practice Signals to peers that have “made the grade” Implies authority Sufficiently able and experienced Salaried, fixed share or equity

4. Two main routes to equity partnership Home grown – salaried or fixed share and then to equity Lateral hire – join directly to equity

5. The process of admission Procedures vary from formal to informal –submission of application –presentation / manifesto Partnership voting, management decision, selection committee

6. The practical things… Needs to absorb a significant amount of information –Financial position of the firm –Terms of the Partnership deed –Legal structure –Profit sharing arrangements –Capital provisions –Tax position –Additional responsibilities

7. Reward arrangements Fixed percentages or formulae based on seniority ‘Lock-step’ / ‘snakes & ladders’ Equal sharing system Meritocratic eg. base salaries plus bonuses The impact of unfair profit sharing

8. Components of remuneration First charge on profits Balance divided amongst the profit sharing partners Monthly drawings vs top up payments Provision for taxation Benefits and expenses Provisions for retirement and/or annuities

9. Performance management and evaluation Transparency Agree performance criteria – objective & subjective Setting targets Reviewing performance 360 degree feedback Impact of results

10. Key performance criteria New business generation Profitability of work – billable hours, recovery rates Lock up – work in progress and debt collection Developing the skills of others Contribution to the firm’s external reputation/brand Client satisfaction Intellectual and technical contribution Contribution to firm management Other intangible qualities – eg cultural

11. Expulsion, de-equitisation and retirement A powerful tool for management Board decision or majority voting Restrictive covenants Notice periods Gardening leave clauses Retirement age

12. Nexia International Admission, evaluation and remuneration of partners in an accountancy practice 22 September 2011 Jeremy Boadle Nexia International Board Member Smith & Williamson, UK, Executive Board Member jeremy.boadle@smith.williamson.co.uk