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Retiring the Billable Hour as a Measure of Performance

In today’s competitive market for talent, we should be looking to set up performance evaluation systems that engage, motivate, and retain professionals. The success of professional service firms hinges upon keeping the best and the brightest. According to the AICPA’s PCPS CPA Firm 2015 Top Issues Diagnostic Report, retaining qualified staff is the number one issue facing firms with 11 or more professionals. All firms, including sole proprietors, see succession planning as a top five issue. It is safe to say that now, more than ever, the retention of key staff and managers is critical to the future success of CPA firms. 

But accountants who are most often evaluated on the number of charge hours they perform are likely to feel as if they are in a lose-lose situation. If they report too many charge hours, they may be perceived as inefficient or incompetent. If they don’t bill enough hours, they won’t hit their charge-hour goals, which tie in to their performance ratings and compensation.

And yet charge hours are one of the most, if not the most, common metrics used by professional services firms such as public accounting firms. While charge hours may only be one part of a firm’s more comprehensive evaluation plan, time and time again, employees will tell you greater weight is often placed on charge-hour goals than any other metric. 

Making the change

It’s tempting for firms to continue to use the billable hour as a metric because the practice is ingrained in the profession and because it is easy to measure. Yet holding on to a process simply because it’s familiar isn’t a sound strategy at a time when technological and demographic trends are causing the profession to evolve rapidly.

It is possible to measure an accountant’s performance without using the billable hour: Just look at the performance metrics for any CFO, controller, or accounting manager who is employed outside of a professional service firm. They don’t have to account for what they did with each minute of their workday, yet their performance can still be evaluated by the use of key performance indicators. For example, to see how well a CFO is doing, a firm might ask such questions as:

Likewise, a firm might use such questions as these to track the progress of an audit manager:

In the examples above, there are no quantitative metrics. Instead, the open-ended questions eliminate performance ratings entirely and prompt a conversation.

According to the Harvard Business Review, more and more companies are eliminating numerical ratings and instead fostering continuous, quality conversations among managers and their teams. They’re doing so to promote collaboration and to reflect the fact that projects often take more or less time than a 12-month period. Having more frequent conversations about performance, companies believe, will also help them retain talented employees.

In the modern workplace, emotional needs—such as feeling appreciated, having opportunities to do what you most enjoy, and engaging in meaningful work—must be met for knowledge workers to thrive. Savvy leaders will spend less time focused on utilization rates and more time talking with their employees so they can understand what drives their employees and how to keep them engaged.