The Power Of Compounding

Let’s assume that you and I are about to start a round of golf. I tee-off first, and as I’m settling into my stance, I stop and turn to you and say ‘How about we make this interesting, let’s bet 10 cents per hole?’ being a reasonable golfer, you say ‘Sure!’ then I smile and say ‘Let’s make it really interesting and double it up each hole?’ again, confident of not doing much damage at such small stakes, you say ‘Great!’ What could be the worst-case scenario? $20? $40? $60? No. You’ve just made a huge bet, and you’d better be good at golf. By the time we step up to the ninth hole, there’s $25.60 at stake. No big deal you might think, but by the time we arrive at the 18th tee, there’s $13,107.20 at stake. That’s the power of compounding.

Table 1.1

Let’s assume that Janet has three years experience in public accounting with a ten partner practice, but is getting frustrated with her present firm.

She passed the UFE about 18 months ago, and now her time is in and she’s a fully-fledged CA, yet she is still being paid the same salary as she was twelve months ago.

Her boss, Ian, is a young, energetic partner. He’s rarely at his desk more than three hours a day, having extended lunches with clients, prospects or referral sources and attending meetings at clients’ offices.

To make matters worse for Janet, Ian has several business interests outside of his firm, and he devotes five to ten hours per week out of the office to attend to these issues.

Communication with him is somewhat disjointed as he often takes a day or two to return his messages.

Janet still doesn’t get what I call ‘Front Line Experience’ – dealing directly with clients, running meetings with them and being the ‘Point-Person’ in all the client’s contact with the firm.

She feels somewhat under-valued and under-utilized, so she called a recruiter and sent them her resume.

In contrast, Paul also has three years experience in public accounting and recently earned his CGA designation while working for his present five-partner firm.

Helen, the partner that Paul reports to sees to it that Paul is introduced to as many clients as possible, and he manages the clients’ files as they progress through the office, supervising 3 CGA students.

When head-hunters call him at work, hoping to tempt him into their offices, he politely declines, stating how happy he is in his present role.

So what makes such a huge difference to how each staff member feels about their position?

Table 1.2

Table 1.2, above table highlights just a few of the compounding effects on staff satisfaction and long-term career prospects with your firm. If you take some time initially with staff to

• introduce them to clients,
• make sure that they receive a variety of different assignments,
• ensure that they become used to supervising other team members, and
• to see to it that they are exposed to a wider number of software programs,

and if you expose them to ‘soft skills’ training sessions where they can learn interpersonal skills, and you take some time to ‘mentor’ them during each year, then you make the professional life of the team member much better, you help them become loyal to the firm and more useful and profitable to you as a practitioner.

This is the same compounding effect at work as we saw in our golfing example.

However, that is not the end of our example. Let us look at a little more detail at the effect of compounding staff experiences.

Table 1.3

Why have I included the bet amount here from my original example?

Simply because $13,107.20 is the equivalent of a search fee (at 15%) to replace a candidate at $87,381, or the equivalent of a decent Manager each year. At a search fee of 20% of the successful candidate’s salary, it’s a senior staff accountant earning $65,536, or at a fee of 25% (depending on which search firm you use) it’s a $52,428 a year person.

By not providing some or all of these attributes to your staff, asking what they want and matching that to what you need, you are effectively starting with a ten-cent bet at the first tee and ending up with a very substantial sum as a contingent liability as you approach the 18th hole.

© 2005, MFA Group Inc