Professionalism and Performance Incentives in Accounting Firms

Abstract

SYNOPSIS This study investigates the structure of profit-sharing schemes and performance incentives within accounting firms. Accounting firms have a strong historical tradition of professionalism but they are also commercial entities. In particular, the audit function within accounting firms serves an important public interest role. Profit-sharing schemes and performance incentives play a valuable role in managing the tension between commercialism and professionalism. Interviews with partners from all Big 4 firms and four mid-tier firms were conducted to gain insights into details of the firms' profit-sharing schemes and performance incentives. We found that the Big 4 firms have established sophisticated commercial performance measurement systems in an attempt to accurately measure the contributions of individual partners, and a number of these metrics are nonfinancial in nature. The range of partner salaries within firms has increased significantly in recent years, providing a further reason for a greater focus on measuring performance. From our sample of mid-tier firms we found a trend toward similar profit-sharing and performance incentives as currently exist within the Big 4, suggesting mid-tier firms are also moving toward a more commercial business model.