When it comes to partner compensation at business valuation firms, there’s no one-size-fits-all model. Just like in accounting firms, you’ll find a wide range of compensation structures, from equal profit-sharing among founding partners to significant gaps based on performance, tenure, or other factors. So, how can partners and firm leaders ensure that the earnings gap serves the best interests of both the firm and its stakeholders?
Let’s break down the key factors and considerations for compensation distribution among partners at valuation firms, where talent retention and recognition of long-term contributions are critical to firm success.
The Compensation Spread: Is There a Right Ratio?
For many firms, the partner earnings gap can vary dramatically based on the firm’s size, profitability, and individual partner contributions. A founder nearing retirement might earn considerably more than a first-year partner. Conversely, some firms prefer an egalitarian approach, sharing profits equally among partners, regardless of their differences in tenure or contributions. But for most multi-partner, multi-generation valuation firms, it’s not always that simple.
In practice, firms often see varied performance levels among partners. Some partners are high performers, driving new business and mentoring future leaders, while others might be more focused on maintaining existing clients. This creates an ongoing conversation about how to allocate compensation fairly—especially when you have partners who, on paper, contribute similar amounts in revenue but differ in tenure or other aspects.
Key Questions for Valuation Firms to Ask
To help firms navigate these complex scenarios, let’s consider a hypothetical situation:
You have two partners in the same department—both handling similar billings, realization, and people development responsibilities. Their performance is nearly identical, but one has been a partner for 20 years, while the other has been a partner for only five. Should their compensation be the same or different? If different, by how much?
While this specific scenario might not directly apply to your firm, it opens up a broader discussion: How should historical value creation, tenure, and long-term contributions be factored into current-year compensation? Is the experience and institutional knowledge gained over decades worth a premium in today’s compensation structure?
The Philosophy Behind Partner Compensation
The philosophy behind partner compensation needs to align with a firm’s long-term goals and values. Are you looking to reward partners based on their current contributions alone, or do you place value on their historical efforts in building the firm? It’s also important to consider what’s competitive in the market. With private equity increasingly involved in professional services and a shift away from long-term loyalty among newer partners, firms need to stay competitive to attract and retain top talent with long career horizons.
Data on Partner Compensation Spreads
Industry data shows a wide range of earnings gaps between partners, and firm size plays a role in shaping these gaps. For instance, according to the Rosenberg Survey, firms with $5 million to $10 million in revenue see compensation ratios (highest to lowest paid partner) ranging from 1.1 to 6.9, with a median of 1.9. As firms grow larger, those gaps tend to widen. The 2024 Inside Public Accounting Survey revealed a median spread of 3.1 for firms between $30 million and $75 million, and a median of 4.9 for firms with more than $75 million in revenue.
What does this mean for your firm? While the industry offers benchmarks, there’s no perfect formula. A gap of 2-3 times might work well for small or mid-sized valuation firms, while larger, more profitable firms may have wider spreads to reflect diverse contributions and leadership responsibilities.
Determining the Right Spread for Your Firm
Ultimately, determining the right compensation spread comes down to your firm’s specific goals. Are you rewarding partners who have historically contributed more, or are you placing a heavier emphasis on current performance? If you’re making these decisions, it’s essential to regularly review the pay gaps between partners and ensure they align with individual contributions and the firm’s broader objectives.
A narrow gap might work well for a firm where partners contribute relatively equally, but if some partners are driving a disproportionate share of new business, managing larger clients, or mentoring future leaders, a wider gap may be necessary to recognize that value.
Future-Proofing Your Compensation Model
In a rapidly evolving industry, how you compensate partners can make or break your firm’s ability to attract and retain top talent. With younger partners expecting more transparency and fairness in compensation structures, and private equity involvement introducing new competitive pressures, optimizing your compensation plan is more important than ever.
As you reflect on your firm’s approach to income allocation, consider how well your current system serves the firm. Is the gap wide enough to reward top performers? Or could a narrower gap foster a more collaborative environment? Regularly revisiting these questions will ensure your compensation model remains aligned with your firm’s evolving needs and values.
Advanced Scenarios to Consider
For those making compensation decisions, here are a few more complex scenarios to consider:
- Tenure differences: How do you compensate a 10th-year partner vs. a 25th-year partner, assuming their current performance is similar?
- Lateral hires: How do you value a lateral partner with 20 years of experience from another firm who didn’t bring over a significant book of business?
- Mid-career transitions: How do you handle partners who are stepping back from their leadership roles but still maintain a client base?
Thinking through these types of questions will clarify your firm’s income allocation system, ensuring it remains fair, transparent, and competitive in an increasingly complex marketplace.
Final Thoughts
Compensation decisions are never easy, but by aligning your partner earnings gap with your firm’s core values and market competitiveness, you can create a model that rewards performance, retains talent, and supports long-term firm growth.
