Performance Is Everything

9Overcome the Challenges in Creating a Compensation Plan

Friend to Groucho Marx: “Life is difficult!” Marx to Friend: “Compared to what?”

In chapter 6, “Why You Need to Reward Different People Differently,” we introduced the trend in professional services firms toward pay for performance. We also discussed a wide variety of variables when considering criteria. In this chapter, we look at specific best practices in pay-for-performance plans, how to go about creating one, and the obstacles you are likely to encounter along the way.

Of all the decisions that must be made in multiowner professional services firms, determining how to change the reward system for owners is perhaps the most difficult for several reasons:

1. No matter what the current system and how well it’s working, a special sensitivity to pay programs always exists. Few want to upset the current apple cart.

2. There may be a long history of compensating owners in a certain fashion, and the new system may also upset the apple cart.

3. No one likes to admit they are overpaid, and the new system may more openly point out discrepancies in pay, either overpayment or underpayment.

4. Owners usually do not want to confront each other about their absolute and relative value in the firm. Finally, we now know there is a right and wrong way to design a compensation system, and not everyone is up to the task, nor all firms.

Some compensation consultants to professional services firms used to say that as long as the majority of owners believed ...