Performance-based compensation is the ideal because it provides an incentive to employees based on the contributions they make to the company. However, preparers who simply crank out tax returns to generate fees while failing to satisfy the client and deliver true value are not making a contribution to the success of the business. To encourage friendly, competent client service, you could pay extra compensation for generating client referrals and improving client retention rates. Consider providing incentives for completing annual continuing professional education (CPE) requirements and attaining professional credentials such as the enrolled agent status. The tax office staff, including the receptionist and clerical employees, could share in an “Office Bonus Pool” equal to a percentage of the growth in office revenue over the prior year. Also consider providing incentives for the accuracy rate of tax returns prepared. The most significant measure of a productive tax preparer’s performance is client retention. Paying extra bonuses to tax preparers whose personal client retention rates exceed 75 to 80 percent could produce dramatic results in terms of growth. The pay plan should, ideally, reward tax professionals for production, while also encouraging teamwork and a commitment to providing quality client service and delivering true value.