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Many firms are structured as an S-Corporation and those partners draw a salary and then distributions on top of that. I don’t see the conversion and resulting salary as that big of a deal.
You both are missing the point of my comment.
1) I am not comparing/contrasting S Corps and C Corps. I was simply stating there are many current partners/owners who are being paid a salary. There are definite differences between benefits allowed for each. Those were not the point of my comment.
2) There is a partner limit and I was not insinuating that BDO will be an S Corporation. Whether an S Corp or C Corp…the owners will draw a salary.
GT considered this 12mo back. Glad it was dropped. Yes, new/young partners would get shafted. Current environment there is little/no appetite for this and PEs seemed to have moved on or at least standby. The argument though was the parter model is archaic, new generation of staff/assoc could care less of some carrot/stick trick of becoming parter in 15yrs, and PE would provide larger infusion of cash to compete with likes of Anderson Tax, Baker Tilley, and other smaller firms that are seeing crazy growth from similar structure. Just not feasible for likes of GT/BDO/RSM and Big4 though
The partner pipeline is disturbing to say the least. And the younger folks mostly don’t aspire to being partners and view it more as a job than a career. Most Leadership needs to consider that expectations of partners do not lend themselves to a desire to be on that path. Like winning a pie eating contest where the prize is more pie. We live in times of immediate gratification and very little long-term thinking…..but I digress.
I’m a tax partner so I understand the tax aspects and currently in an S corp structure. Partner comp is set to to account SE tax, full boat on insurance, state taxes, etc. going W-2 changes that cash burn so keeping same comp seems like a bit of a windfall for partners, which is great, if that happens. The cost, as you mention, is being less involved as an owner, feeling more like an employee and much easier to push out of the organization. Some may be ok with that. Not sure if it’s good or bad but feels a bit like a power grab because something else is on the horizon.
CBiz is a fascinating read being public and utilizing a PE style roll-up strategy.
I get the sense they want to become big enough that a top 10 firm will buy them out. Little public float, growth via small regional firms, and focus in niche areas where they can compete as a boutique.
I think BDO is setting themselves up to be acquired and shifting away from growing through acquisition. Younger partners are going to get the shaft - they’ll be working harder without having any skin in the game.
How is that different from typical structure? The younger partners are the revenue generators at midsize firms…while “leaders” from 50+ size firms (via merger or legacy) take leadership roles and all the $$$ with absolutely no experience leading an org of its size or strategic capabilities
BDOs growth strategy has mainly been inorganic (and not well thought out with regards to integration from what I’m told.). But I can see small/midsize firms being much more reluctant to sell to/join BDO as a Corp v a partnership.
You might be overestimating the new partner mentality. All that integration and streamlining takes time and requires current investment that many partners don’t want to fund, even if they know that it will pay off long term. The roll up strategy results in a number of partners who don’t have the loyalty or the trust to lead a large complex organization. It’s why we haven’t seen a strong challenger to the Big4 and at this rate I’m not sure we will see one in the next decade.
Mentality wise - partner title has prestige and clients like partner face time. Partners receiving a K-1 feel a greater sense of ownership in the firm and act accordingly l.
MD may have similar pay, but it’s just not the same.