workers of the world unite.
by bill penczak
about a decade ago, the managing partner of our $100 million firm and i were discussing compensation and commission for our five business development professionals. he and i were in complete agreement that there should be no cap on commission or compensation – even if that compensation level with their base and commission was at par with or even exceeded that of the partner group.
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“if they’re making money, we’re making money,” he said. “why would i want to limit that?”
anyone who agrees with that premise should continue to read below. if not, feel free to move on to the next 卡塔尔世界杯常规比赛时间 article or the ny times short crossword.
in an early december planning session for a fast-growing west coast firm, one of the firm’s top 2023 priorities was increasing profitability. while top-line growth was at or above industry standards last year of about 7 percent, the firm endured high labor costs because of being in an expensive market and the firm’s conscious decision to pay above market rate to find and retain good people.
i proposed an idea that almost got me kicked out of the meeting.
the firm’s realization and utilization figures were far below their peer group. after calculating the upside dollar potential of achieving peer parity utilization and realization, there was a potential to nearly double the firm’s gross margin. that garnered some attention from the partner group, as that would have a direct bearing on their distributions. it was real money.
once we agreed on the concept, i helped draft a schedule for each level (staff, senior, manager) of the firm’s audit and tax departments, with milestones for realization and utilization during the january-april 2023 busy season. with a goal of setting reasonable and achievable expectations, the schedule established minimum realization and utilization levels that were above the prior year but not at the peer group level. we knew that would be a slow build. achieving one percentage point above the new target realization or utilization goals would trigger a bonus. at or below, no soup for you. hitting it out of the park, either through realization or utilization, a staff-level employee could earn nearly $10,000 in bonus.
one of the partners blanched. “are you crazy – you want to bonus someone with a $60,000 base another $10,000?” this is where the sharing the upside – workers of the world, united – became powerful. the financial model structure paid one-quarter of the increased upside to the employee and the balance to the firm. “so would you pay out $10,000 for an additional $30,000 in pure margin?” i asked.
the partner demurred, and the program was launched.
in june, we calculated the results and determined that the program did indeed move the needle, with a 25 percent increase in profitability over the same period the previous year, adjusted for a larger client base and slightly higher hourly rates. as expected, a few firm superstars embraced the challenge and were rewarded appropriately. the middle tranche of performers was bonused about the same as the previous year, and there were a handful of professionals who received no soup. as you might expect, the word got out about who was in which group, and when the managing partner was approached by one of the lower-tier performers about the inequity of the program, the managing partner wisely reminded the staff person that everyone had the same opportunity to excel, and some chose to take it, and others did not. and left it at that.
firms are challenged by rising labor costs, fee pressures and a generation of employees who, frankly, often have unrealistic expectations about compensation, promotions and bringing their comfort llamas to work. a profitability-sharing initiative such as this empowers higher performers to benefit from the firm’s increased profitability through their own actions and efforts. and if managed properly, the firm benefits as well: workers of the world, unite.