Management consulting

Box 36.4 Ideas for improving compensation policies

●Work backwards from marketplace pricing and cross-check against industry benchmarks.

●Take non-billed time into account.

●Avoid excessive fixed costs by developing a compensation plan driven by bonuses.

●Consider discrete bonus pools for different levels of seniority.

●Determine the range of compensation varations depending on the firm’s culture.

●Develop a systematic process for allocating bonus pools.

●Compensate rainmakers based on sales targets.

●Try additional nontraditional elements of compensation.

●Convert the firm from a partnerhip model to a public company to provide stock-option incentives to employees.

●Create “near-partner” positions that offer earlier equityor profit-sharing.

●Accelerate tracks to partner or equivalent status.

●Don´t try to fool consultants with complex compensation plans.

●Be prepared to change the plan.

Source: Kennedy Information.

the growth of the firm’s total value, which will be the value certified by the market in firms whose shares are publicly traded. If the firm is closely held, the price of the shares will be determined by valuation. As a rule, there will be established formulas for repurchasing the shares from consultants on retirement or termination of contract on terms that are fair both to the consultant and to the firm.

Obviously, to use this technique, the firm must be established as a corporation and shares or share options must be distributed and taxed in accordance with local legislation (see also section 14.1). Consultants accept the formula in the belief that the firm’s market value will grow and seek to increase this value through their personal performance. The impact can be disappointing and counterproductive if the firm’s value skyrockets or falls for reasons unrelated to professional performance.

Compensation policy

In conclusion, it is useful to stress that a compensation policy or plan has a strong impact on the climate in the consulting firm. Consultants at all levels should know what the policy is and how it is justified. They should have no reason to suspect that the firm’s management uses a double standard in applying the policy to different staff members and different levels of the consulting hierarchy. The purpose of a compensation policy is to motivate the

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whole staff and stimulate achievement, not to protect privileges and create tensions between groups and categories of consultants. Salaries must be competitive at all levels to attract and retain able and competent professionals and build up the firm’s human capital.

Compensation policy should be proactive, not merely reactive to observed market trends, and should aim to prevent the exodus of talent and to motivate individuals for a long-term view of their career, learning and achievement. Box 36.4 summarizes the conclusions reached by the Kennedy Information survey.7

1The first significant attempt to define these characteristics was made by the Association of Management Consulting Firms (AMCF, formerly ACME) in the United States. See P. W. Shay:

The common body of knowledge for management consultants (New York, ACME, 1974). In 1989 ACME published a revised edition of this first guide under the title Professional profile of management consultants: A body of expertise, skills and attributes. See also Ch. 10 in G. Lippitt and R. Lippitt: The consulting process in action (San Diego, CA, University Associates, 2nd ed., 1986).

2To facilitate contacts between consulting firms and students, the Harvard Business School has established a Management Consulting Club. The School and the Club publish a periodical career guide. See The Harvard Business School Guide to Careers in Management Consulting, 2001

Edition (Boston, MA, HBS Press, 2000). See also www.WetFeet.com, a Web site for students interested in careers in e-business and other Internet-related consulting.

3There is little published information on the career patterns in various consulting firms. Information from several North American firms can be found in the consulting career guide of the Harvard Business School, op. cit.

4See AMCF: Operating ratios for management consulting firms: A resource for benchmarking

(New York, 2000).

5See Kennedy Information: Compensation and recruiting trends in management consulting

(Fitzwilliam, NH, Kennedy Information, 2000).

6AMCF, op. cit.

7See Kennedy Information, op. cit.

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The previous chapter noted that all entrants to the consulting profession should have an excellent educational background and that a great many will also have several years of practical experience. Yet consulting has its own special training and development requirements that are additional to whatever a new consultant may have learned at university, at business school, and in former jobs.

There are four main reasons for this. First, consulting on how to do a job is different from actually doing that job. A new consultant must develop a full understanding of this difference and acquire the technical and behavioural skills that are specific to consulting.

Second, the breadth and depth of technical knowledge required to advise clients usually exceed what a new consultant has learned during his or her studies and previous employment. A new consultant with five to ten years of business experience may have worked in two to four jobs and experienced a relatively small number of business and management contexts. This does not provide enough experience for giving the best possible advice to the client. In addition, a new consultant may have to update and upgrade the technical knowledge acquired during university or business school studies.

Third, most new recruits will join the firm without any prior education in consulting per se. University and business school courses in management consulting are rare. Those that exist are elective and attended by small numbers of students.

Fourth, the new entrant is joining a consulting firm which, it can be assumed, has a particular consulting philosophy and strategy. This will concern issues such as the objectives of consulting, the methods and techniques used, the ways in which clients should participate, and ethical considerations. There is a need to “indoctrinate” the new recruits in the consulting firm’s professional approach, so that they identify themselves with its philosophy and culture.

Further, the consultant’s education does not end with the completion of initial training. “Least of all can consultants afford to take the attitude that the old ways of doing things are good enough. Probably no group is more severely challenged

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