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How do large consulting companies and law firms handle compensation? How do they handle commissions and finder's fees when a partner brings in new business requirements in the market research industry? |
| Compensation plans for consulting companies and law firms can take a variety of forms. For the most part, a base salary component is provided to the principals and partners of these firms. Bonuses/incentives are often provided to reward these key people for the business development activities they generate that contribute to the growth and success of the firms. The manner in which these bonuses/incentives are provided may vary based on the size of the organization, the contributions of each principal/partner, the relative financial health of the organization at year-end, the level of subjectivity or objectivity desired for determination of awards, etc. In consulting firms, incentive plans are often implemented to reward new business, and can be paid in a manner that recognizes the size of the project relative to its professional fees. Some firms seeking to encourage new client business over existing clients provide for a greater reward for new business development, but these pay plans are often subject to the firm's business strategy. Where existing clients are valued the same as new clients, little if no differentiation should be made between the size of the rewards for either type of business brought in. In addition, distribution of profits is a common compensation element among partners, particularly in law firms. A decision is made beforehand relative to the percentage share each partner will receive, based on criteria such as ownership interest, historical and projected level business development and billables. etc. However, this system can become complex as the size of the firm increases. Another form of compensation utilized by these types of organizations includes a form of long-term incentive that provides phantom equity to key individuals of the organization. A plan that provides for phantom shares or units can be implemented to reward key players of the firm, with the level of achievement of performance metrics driving the value (up or down) of the shares/units. Performance metrics can be tied to financial and/or operational measures. |
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