pay for performance to reap greater rewards.
by jody padar
radical pricing – by the radical cpa
as long as you’re changing how your firm operates, you should also look at how your staff is compensated. if your customers are paying for value, shouldn’t your teams be paid on the same basis? once your firm turns to a value paradigm, the people delivering the knowledge work – your staff – are your most valuable asset and should be compensated as such.
more: five areas to ground new metrics other than time | five reasons to ditch timesheets for good | six steps to creating a standardized practice | value pricing requires defining your clients | stop selling time | three critical factors drive the value pricing trend | stop looking for talent that does not exist
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it’s all about alignment. clients pay on value. staff should be compensated on value. there are proven ways to make sure this alignment takes place.
profit sharing is a good place to start. consider it a form of risk compensation. this model means the more profit you realize, the more there is to share with your teams. profit sharing reinforces the client-centric nature of your new firm because it encourages your teams to deliver excellent customer service while searching for additional services they may need.
as i’ve previously asserted, firms wedded to timesheets have no incentive to be customer-centric. if you’re billing by the hour, teams are getting paid by the hour regardless of how they treat the client.
when your firm starts paying for performance, a customer service gene kicks in, and people become friendlier. this isn’t limited to the treatment of the client. if your staff benefits from the firm’s profitability, they’re invested in its long-term health and success. they may even begin paying attention to how everyone on the team performs. one person’s success becomes everyone’s success.
profit sharing also reinforces adherence to scope. if you offer staff more profit on service requests and encourage them to harvest more work, they will start looking for ways to work more efficiently and opportunities to sell more services. you’ll still have to make sure these extra services are valid. you don’t want them overselling to the client, but you also don’t want them overworking files. you’ll find a profitable balance.
in practice, pay-for-value sets a base salary that reflects roughly 75 percent of an employee’s current salary. the remaining 25 percent is incentive-based.
you’ll likely find some of your employees are exceptional and will earn more than their previous compensation.
others will do just fine.
a third group will not perform very well at all.
unfortunately, this third group no longer aligns with your new organization. they probably feel more comfortable in a traditional firm and will fit better elsewhere.
expect collateral damage when restructuring. some clients and staffers will not fit well, but you’ll be doing yourself a huge disservice by allowing them to stay because they will hold you back.
on the upside, you may be able to anticipate who your five-star employees are, but in the current environment, they’re not getting the recognition they deserve. once you move to pay-for-performance, those employees will really shine, and their investment in your firm will grow. this will lead to great performance for your clients, great customer experience, great word of mouth, and a consistent pipeline of new client prospects and new employees.
profit sharing and pricing by value align your firm internally toward a collective process and a collective goal of profitability and customer service.
tracking hours will no longer be relevant, but you will still need to measure your team on something. what are your kpis, and what protocols should you have in place to determine bonuses and measure employee success? here are a few suggestions to get you started:
- quality response time and on-time delivery
- revenue per full-time equivalent
- routine client calls
- communication skills and problem-solving
- repeat business
- client surveys
you may also be wondering how you can afford profit sharing. it should be built into your bundled services and accounted for in your pricing. in other words, your prices should cover investing in your team and your firm’s growth.