Profit sharing in professional accounting firms in different countries and by archetypes

It is very difficult to diversify one's human capital (Gillson & Mnookin, 1985) which in turn influences one's remuneration in professional service firms. Partner compensation arrangements are central to the organisational purpose of professional accounting firms and partner remuneration plays a vital directional role in partnerships.

This study investigates whether nationally organised accounting firms use the same profit sharing methods in different countries to enable national firms to move to a fully international structure where partners in all countries share from the same profit pool. A single profit pool creates opportunities for firms to utilise the benefits relating to size and international expertise and obtaining work that uses this competitive advantage. A firm may also reduce its risk by rationalising its operations and reduce the exposure to work in which it does not have a competitive edge. The profit sharing arrangements of large professional accounting firms in South Africa were analysed focusing on similar criteria to that used in a study of profit sharing between partners in Australian "Big 6" professional accounting firms (Burrows & Black, 1996).

This research confirms that there are common themes in profit sharing methods used by national professional accounting firms in different countries. It strengthens the argument for having profit pools as wide as the ability to efficiently supply expertise across locations. (Zimmer & Holmes, 1996).

Partners' views concerning what should be rewarded in a "Big 6" firm are also investigated and relative reward levels for partner archetypes are presented. These gradations reflect the degree of diversifiable risk for partners in large accounting partnerships resulting from the individual characteristics and roles of partners.

Finally some thoughts on the principal determinants of partner share awards are discussed.