It is critical for the firm to define the preceding four parameters. Having a well-defined career track will send a message that objective criteria are used to evaluate, promote, and compensate professional staff. The work of defining these elements will be recovered many times over in reduced human resources effort for appraisal, promotion, compensation, and hiring decisions. Firm recruiting efforts will be more competitive. The best professionals are attracted to firms that have clearly established tracks for advancement, and firms with fair, objective promotion and compensation systems retain those professionals.
A number of other considerations must be accounted for in designing the professional services firm organization structure and career tracks. These considerations are outlined next.
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Parallel Career Tracks for Nonpartners
The first area is differentiating partner track staff and nonpartner-track staff. The skill sets required of staff in a professional services firm change significantly over the course of their progression from consultant to partner.
Consultants are rewarded for data gathering, analysis, and individual effort.
Partners are expected to perform in very different endeavors: direction setting, client relationships, sales, and business development.
Because of this disparity in requirements and expected skills, often firms find that high-performing consultants and individual contributors are ill suited for (or uninterested in) performing the duties and expectations of a firm partner. This phenomenon can be driven by personality, work style, interest, and capability of the individual staff member and means that firms are forced to make a choice: Should high-performing professional staff who show little affinity for the skills required of a partner be provided with a different professional track for advancement?
There are a variety of benefits to providing a parallel track. Depending on the type of work being sold by the firm, the existence of subject matter experts who can be used for specific engagements can be a very powerful tool in the firm’s business development arsenal. Furthermore, an individual with proven project execution skills can be parachuted into difficult projects or can be counted on to manage projects and minimize overall delivery risk, freeing business-development-oriented partners to move on to more leveraged activities. A proven, high-quality senior level resource can be of immense help to the firm.
On the other hand, a specialized and rare skill can quickly fall out of favor with clients, leaving the firm with an expensive, difficult-to-retrain, and unbillable resource to manage. Such individuals can also become disgruntled with their career progress within the firm. If the parallel career track and advancement for their role is ambiguous, they may feel that they have been relegated to a backwater within the firm. This situation may eventually affect their job performance, and they may leave on their own.
The decision for parallel career tracks for individual producers or subject matter experts depends greatly on firm size, structure, type of work being sold, and client needs. While there is no general methodology for determining what is best for a specific firm, what is certain is that firms should make a clear-cut decision on whether they plan to support alternate (nonpartner-track) career paths. Firms that find this issue difficult are usually the ones that allow nonpartner-track individuals to stay with the firm but do not provide clear roles, responsibilities, and advancement paths for them. This puts the firm and the individual in the worst of both worlds.
While recruiting and retention for firms are covered in Chapter 11, recruiting is mentioned here because there are strong linkages between career track development and recruiting. One of the most important factors in selecting a
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firm for professionals is the potential for learning and advancement. Therefore, it is important that firm recruiting efforts and collateral ref lect the defined career paths to set clear performance and promotion expectations with potential candidates as early as possible. Convey the message that the firm is well organized, and you will attract the best candidates.
Review and Update of Career Tracks
Like most firm governance structures, career tracks and promotion criteria should be reviewed periodically to ensure that they remain relevant and continue to ref lect reality. Typically, firms review these criteria annually and make minor changes to the overall model. Complete overhauls of the career track system are usually driven by major industry changes, large-scale firm growth, mergers or acquisitions, large changes in the firm’s service offering that occur over time, or changes in strategic direction. These major adjustments are rarely executed and may happen only once every 5 to 10
years. Large changes to the career track and promotion plan affect every professional in the firm and entail a resetting of career expectations by nearly all.
Compensation and Benefits
As outlined earlier in this chapter, compensation is an important element of overall employee satisfaction. Research has shown that as long as compensation is within reasonable (plus or minus 10 percent) range of employees’
marketplace expectations, other factors are more important determinants of overall career and job satisfaction. However, when compensation strays outside those ranges, it becomes the number one predictor. Inattention to compensation can quickly ruin a firm through mass exodus of key staff.
Compensation setting can be challenging for professional services firms.
Salaries and benefits are usually the largest direct cost by far in a professional services firm; therefore, controlling compensation expenses has the largest impact on overall firm profitability. On the other hand, the firm’s effort to recruit the “best and brightest” and deliver the highest level of service for clients can be severely hindered by an uncompetitive overall compensation package.
Best practices for firms in the area of compensation include:
• Clearly defined compensation programs: Base salary, bonus, and other compensation expectations for each level should be clearly set. While firms may not elect to have an exact salary for each level, ranges of compensation are appropriate as outlined earlier in the chapter.
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• Total compensation concept: Employee base salary and other cash compensation are only a portion of the total employee expense for professional services firms. Benefits, training, and other forms of compensation can range from 10 percent to 30 percent of the total cost of an employee. Because employees often consider only direct cash compensation when benchmarking themselves against peers in other organiza-
tions, the firm should establish the concept of total compensation for employees and highlight for staff the total package of compensation
and benefits costs incurred by the firm. One major consulting firm
sends employees a total compensation report annually and includes all of the compensation components for professional staff valued appropriately in dollars.
• Periodic staff compensation reviews: Annual review of compensation for each staff member. These reviews should usually be tied to the staff annual appraisal. Periodically, the firm may perform market-adjustment compensation reviews that are not linked to the appraisal cycle.
• Periodic compensation benchmarking: To avoid undercompensating staff, the firm should benchmark professional and administrative salaries
against the market every three to six months. An annual schedule for compensation reviews, usually tied to performance appraisals, is sufficient. For certain high-demand skills, a six-month incremental check is necessary to make sure the market has not changed significantly. Salary adjustments can work both ways (i.e., down as well as up). If the market has come down significantly, downward salary adjustments may be in
order. Downward salary adjustments can be incredibly demotivating and should be avoided if possible.
• Publication of salary and benefit benchmarking data: Because professional staff will inevitably conduct their own benchmarking research, the firm can mitigate any negative impacts by proactively researching total compensation appropriate for the firm employees. Benchmarks
will vary by level, firm type, geography, and macroeconomic conditions.
This benchmarking should be used to set total compensation levels competitively, as well as ensure that staff members are satisfied that objective criteria are used in assessing market levels.
• Linkage of compensation and billing: If salaries for a given level within the firm are confined to a certain band, the firm can more easily set bill rates with the expectation that staffing will produce a certain amount of gross margin. For example, the firm may set a policy of
billing associates’ time at three times cost. The bill rate for an associate making $75 per hour, thus, would be $225 per hour. The use of multiples of salary standards to establish bill rates makes project estimating and budgeting an easier process and can be facilitated through the establishment of clearly defined compensation for staff levels.
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• Adherence to external constraints: Compensation packages should comply with any applicable federal, state, or local laws, as well as any other guidelines or regulations that may apply to the firm, voluntarily or mandated.
Compensation Disclosure
A difficult decision is whether compensation information should be publicized internally by the firm. Knowing the compensation ranges at each level can serve as an incentive to junior staff, creates a culture of openness, and eliminates time-consuming gossip and backbiting over salaries. However, there are some drawbacks to this approach. Competitors can easily benchmark themselves against firm pay rates. Furthermore, if salaries are perceived by the staff to be noncompetitive, attrition rates will be higher. If the salary ranges are too wide or regarded by the staff as inequitable, public salary information will be counterproductive as well.