Williamson and Oliver Case Context Williamson and Oliver is a large firm providing accounting and auditing services

to a variety of clients. It has expanded its business by buying up smaller firms in desired localities. The firm engages in six different lines of business, namely, career path of employees; compensation of employees; and desired behavior from employees. Problem Statement This report responds to the following question: What changes should be made to Williamson and Olivers compensation system in order to bring about the desired outcomes in their key result areas? More specifically, how can the following issues be addressed (a) lack of management experience on the part of the PICs; (b) low market share for the majority of the offices; (c) the lack of eligible managers for promotion; (d) achieving the ideal mix of short-term and long-term profitability; and (e) the rocky transition from a local firm to a local office of a national firm. Analysis The firm currently aims to concentrate on four key responsibility areas Practice Management, Practice Development, Human Resources, and Client Service, by focusing on six specific factors net income, collections, chargeable-hours growth, client service, human resources development, and one-firm commitment. This set of factors forms the basis for the firms evaluation of each individual office under it, regardless of the mix of services offered by that office. The mix of services offered by the company is summarized by the table below, with each service being offered to the following types of clients.

The current evaluation system is therefore lacking in this regard since it uses a single set of factors to institute control over the entire range of services, without consideration for the kind of strategy the firm needs to employ. Recommendations The group therefore proposes that the office evaluation system be modified to take into account the particular metrics that are salient for each individual strategy. The alterations proposed to the system will address the problems of the firm. To supplement the new system, several additional recommendationshave been made which will be presented in the following section.

Management Training Programs Training is necessary to address the lack of eligible managers for promotion in the future. The group recommends training programs as prerequisite for promotion to senior accountant as well as PIC. That is, before a junior accountant and a senior accountant can be promoted to senior accountant and PIC, respectively, they must go through the firms management training program. These programs would involve extensive on-the-job training in the position for which they will be promoted to. This includes the requirement that each senior accountant would be required to have regular on-the-job training as PIC, for instance, at least once a month. This is to place emphasis in ensuring a succession for each offices PIC.

Service Bond The success of the above training programs is hinged on the retention of these junior and senior accountants. As such, in line with training, the group recommends that the firm compel those undergoing or have accomplished the program to stay with the firm for a given number of years to ensure that there is a sufficient pool of PICs.

Hiring Outsiders The group considers that the above management training programs cannot presently address the lack of eligible managers for promotion. As such, if there are no eligible senior accountants to handle the general management job of a PIC, the group suggests that the firm consider hiring non-technical managers, but preferably with an accounting background. This, however, is a form of last resort for the firm in consideration of its shortcomings, which include degradation of employee morale and the lack of experience of the manager in this specialized position.

New Client Incentive Bonus A majority of the firms offices have a low market share in their respective localities. To address this problem, the group recommends the implementation of a client incentive bonus. This involves awarding employees who have brought in new clients a portion of the revenues generated in relation to their project with these new clients. This would encourage all employees, even entry-level accountants, to pursue or improve the marketing aspect of their job. The group takes into account that certain states in the U.S. do not allow this type of financial rewards for professionals. In these states, less explicit form of rewards should be implemented, such as _____.

Revised evaluation system to include both financial and non-financial metrics (See Exhibit __)

The above set of measures parallel the current set used by Williamson and Oliver. The main revision is that a separate set of metrics is used for each strategy employed, with the composite weights adjusted accordingly. Service areas that are mature and require a harvest strategy need a greater emphasis on net income and collections, and less emphasis on revenue growth and development. Service areas that have a high potential for growth and require a build strategy need a greater emphasis on growth in market share, and less on short-term metrics such as net income and collections. Specific metrics for the long-term factors client service, human resource development, and one-firm commitment, have also been added to complete the picture. Client service can be measured by utilizing customer satisfaction surveys and peer reviews. This involves the averages of the final numerical ratings for both the customer satisfaction survey and peer reviews Human Resource Development can be measured by conducting interviews with the underlings of candidates for promotion. High marks for the subordinates reflect favorably on the management skills of the candidate. One-firm commitment is a persistent problem for the company since the local offices that it acquires still retain their old corporate culture rather than assimilating that of the parent company. Hence the local offices tend to continue doing things their way rather than adapting to the practices of Williamson and Oliver. One way to counteract this tendency is to make part of the PIC compensation dependent on overall company performance.

QUESTIONS 1. Is Williamson and Oliver committing the fallacy of hoping for A while rewarding B? I dont think that Williamson and Oliver is committing the fallacy of hoping for A while rewarding B, but if they fail to manage the new reward system fairly they could easily commit it. The main goal of the new incentive plan is to improve the profitability of the firm and make the right decisions to keep the firm prosper over long-term. As the text describes, all PICs are inexperienced in their role of general managers, lack managerial skills, focus on short-term profits and have not made the psychological transition from a local firm to a local office of a national firm. In short, they are used to thinking as accountants and not as managers. The company should expect PICs to rationally adjust to the rewarding system rather that expect them to change their management style by saying they should do it. Therefore, implementing the new system could help reduce these problems and force PICs to change their management style and focus on longterm planning. Before implementing the new system, the company has to make sure that this system doesnt espouse long term growth and profitability while rewarding short term results. It has to espouse and reward long term results; otherwise they would be committing the fallacy of hoping for A while rewarding B. Also, the company has to overview the overall system and performance factors and results periodically and make sure that the focus doesnt continue being on short term results but long term results.

Finally, there has to be good communication within the company to avoid people working at cross purposes. This would happen when those who accept the rhetoric follow conflicting paths to those who didnt mean it. 2. Can you expect PICs to worry a lot about factors not in the formal reward system? PICs are considered general managers of an autonomous profit center. They are responsible for managing different size businesses and serving diverse markets. PICs will probably worry about factors not included in the formal reward system. As the text states, most of the PICs do not understand completely the new reward system presented by Ted Johnson, partly because they do not posses enough management knowledge. As a partner-in-charge of a major office said; he is not sure what Ted Johnson means with client service, HR development, and one firm commitment. If they dont understand the formal reward system, they will need to be trained about how to change their managing policies, how to focus on long-term profitability, how to manage well their units and how to change their mind settings from managing a local firm to managing a local office of a national firm. Therefore, I believe that if the PICs are trained about how this new reward system will not only benefit the company but also benefit them, they will be open to implementing it. 3. Can the soft, future-oriented performance areas be sufficiently quantified to permit inclusion in the reward system? I believe that the soft future-oriented performance areas are sufficiently quantified to permit inclusion in the reward system. The new reward system has a set of soft future-oriented measures such as one-firm commitment and human resources development, which have a high impact on how performance is assessed. These measures, set around soft targets such as behaviors, need to be taken seriously or employees will soon realize that only performance which has a direct impact on the bottom line counts. The company has to make sure that hard measures are not the only factors taken into account when bonuses are awarded. 4. Given the management task at hand, how would you structure the set of measurements for an office of WO? (What measures and what weights across the set of measures?) Would you answer vary across offices? Within the key responsibility areas of the PICs, the six specific factors on which the office will be evaluated are the following: a. Net Income: PICs will naturally focus in their departments net income. As the area director said; profit is the name of the game of the firm. Therefore, I would give a high weight on profits. An important point to take into account is that incomes vary widely by region. When comparing the net income figures of the different offices, this aspect should be taken into account. b. Collections: days sales outstanding represents the average time, in days, that receivables are outstanding. It helps determine if a change in receivables is due to a change in sales, or to another factor

such as a change in selling terms. Comparing the departments days sales outstanding with the companys credit terms is an indicator of how efficiently the department is managing its receivables. Collections will vary according to the client list that offices have. Small companies (clients) may be able to pay faster than big companies, or vice versa. c. Client Service: the best single measure of client service may be growth in revenue by client. Gaining new clients is essential, but the bottom line on whether PICs are serving clients effectively, year after year, isnt just revenue, it is in embracing a clients full list of needs and objectives. And thats best measured by year-over-year revenue change. I would give a high weight on client service. The client list will vary according to the office location. d. Human Resources Development: the most important measures is this category includes; short-term and long-term goal setting, assessing performance and making sure that the evaluation process actually produces changes. I believe that PICs effectiveness must be tied to the compensation plan. e. One-Firm Commitment: good management has to focus on the goals and needs of the company. PICs should not only focus on their departments profitability but also on the companys wellbeing especially on a long-term perspective. I would give a high weight on net income and client service, a lower weight to collections, and a medium weight to human resources development and one-firm commitment as measures for an office of WO. 5. Given your understanding of the industry situation, WOs position within the industry, and Ted Johnsons sense of mission for WO, is the new incentive plan a positive or a negative factor in the management of the firm? I believe that the new incentive plan is a positive factor in the management of the firm. Companies are currently responding to changes in the auditing environment by trying to ignore it while hoping it will go away. Some companies are emphasizing product differentiation to justify a price premium and developing low-cost leadership to make possible aggressive pricing. They are also trying to shift the product mix toward non-audit services. This clearly shows that many companies are trying to avoid having to pay a CPA firm for its services and CPA firms are losing valuable clients. Therefore, I agree with Ted Johnson that a change has to be made; and implementing a new incentive plan that focuses on long-term profit could be a solution. If the company decides to implement this new plan, they will have to train CPOs about how the system works and how they can take advantage of it to increase the departments profitability. They also have to be trained about how to mentor and manage employees in focusing on long-term goals and how this negative short-term impact on current billings and short-term profit will make the department and the company benefit in the long term.