Time to Dump the ‘Eat What You Kill’ Compensation Model

Don’t hamstring your professional services firms with outdated compensation policies that reward individuals instead of the team. This approach may have worked well in the past, but in a 2021 economy and beyond, there’s a better way. Andi Baldwin explains in Chief Executive.

It’s surprising how often we see professional services firms get in their own way when it comes to driving new business and deepening partnerships with existing clients.

A primary culprit for this is outdated compensation practices that reward individuals over the team. This approach may have worked well 10 or 20 years ago but is no longer aligned with the need for services firms to harness all of their internal resources to better serve their increasingly global and complex clientele.

Rewards in the professional services industry have long been based on the “eat what you kill” model. This law of the jungle continues to inform many company cultures.

Essentially, it’s every man or woman for themselves, with fat sales commissions going to those rainmakers who succeed in bringing in new business. When a big sale occurs, it’s like an antelope’s been downed on the Serengeti as everyone clamors to get a piece of the credit and the financial rewards.

The problem with this approach — as some of the smartest services firms are now realizing — is that it encourages internal competition rather than collaboration. Partners are incentivized to pursue their own wins rather than bringing in other practice areas that could have something that the client needs. Morale suffers.

Worse, if employees feel they’re being cut out of the action and lack a stake in the company’s success, they possibly leave for greener pastures where they can more fully share in the wins.

Better collaboration is the key to realizing the full potential of partnerships with today’s clients. Services firms are working with large companies that are global in nature, doing millions of dollars of work across multiple service lines and geographies. Globalized clients themselves are increasingly demanding a fuller suite of services from firms.

This demands a more sophisticated approach to incentives that recognizes the contribution of everyone on the team who helps maintain and strengthen a relationship as well as the initial sales win.

There’s no silver-bullet solution for services firms looking to revamp their compensation structures. But there are some key principles they should follow as they ask themselves how to encourage collaboration and incentivize a broader range of work.

  • Be Nimble: Design a compensation and commission structure that is flexible and that evolves according to the firm’s strategic goals. In a year in which a firm aims to add more clients and expand to new regions, it makes sense to more highly reward new business wins. But the firm should be able to pivot to a different compensation structure when the overall business priority changes. If the following year’s strategic goal is to consolidate relations with existing customers through providing better service, different teams and achievements should be rewarded with incentives.
  • Reward Work: Firms have traditionally over-rewarded initial sales and under-rewarded the work of maintaining and growing relationships even though the latter provides a path to more sustainable growth. As they re-think their compensation models, firms should be looking at ways to also reward work that leads to client retention or that expands business with existing clients. That could be through a collaboration credit system where points are awarded for work that leads to new or retained business, with the bonus pot divided up accordingly.
  • Communicate Often: Clear and consistent dialogue about compensation policy is another essential element to implementing change. A lack of clarity over incentive policies can quickly lead to in-fighting over who gets the commission, hurting staff morale. Reforming the compensation system is a delicate change management challenge because it risks triggering resistance from those who’ve benefited richly from the old way of doing things. Nuanced communication from the top is crucial to address those concerns and to convince the whole team of the long-term benefits of an incentive structure that values different types of contribution.

The rainmakers can still make it rain and be richly rewarded for doing so. But an incentive system geared more toward collaboration is just an overdue recognition that they’re not the only ones producing the crops.