If you really want to drive results in your firm, you need to align owner and employee compensation to the firm's strategic initiatives. But before we get into this discussion, here are some questions that you should ask yourself and your fellow owners:
* Do we have a single vision for the firm?
* Can every one in the firm clearly state it in 25 words or less?
* Do we have one firm culture, or many cultures in the firm?
* Have we identified the three or four most important goals that the firm needs to accomplish this year?
* How many people in the firm know what they are?
* Have we identified what success in each one of these goals means and looks like?
* How motivated and committed are the partners and staff to achieving these goals?
Once you have solid answers to these questions, you can continue reading this article.
Only performance is reality
Harold Geneen, former chief executive of ITT, is quoted to have said, "In business, words are words, explanations are explanations, promises are promises, but only performance is reality."
If we agree with Harold, then it seems that we need to reward for strategy implementation and performance.
Firms have been struggling for years to get better performance from their owners and employees. My partner, Coral Rice, often says that, "All firms are perfectly aligned to get the results they get."
Usually, the firm's performance is lacking because there is no single vision of what the firm wants to become; there is no one culture or team. Think of a college sports team: There is only one team that represents a university. While there may be a first team and the bench players, they are all on one team with one goal - to win the game that they are currently playing. To get alignment, everyone needs to know the firm's mission, its vision and its values, and what performance is necessary to achieve success.
Once the firm becomes aligned, then it is time for motivation to kick in. There are two types of motivation - extrinsic and intrinsic. Extrinsic motivation (mainly money) is a short-term motivator. It doesn't last more than a day or two. Money itself will never win the hearts and minds of your people.
You need to focus more on intrinsic motivation - pride in what we do, self-fulfillment, interesting work and believing in the firm's vision. Does your vision motivate your owners and employees?
Finally, performance is driven by the execution or implementation of your firm's strategic initiatives. Good execution begins with a good vision and a disciplined approach to implementation. While most firms are getting good at doing strategic plans, most still suffer from poor implementation.
There are several different ways to measure a firm's overall performance. Traditionally, accountants have relied on financial measures - net income per partner, margins, realization, utilization, etc. These measures, however, don't tell you what to do to improve financial results. They only tell you what happened. Yes, you can beat your people to work more hours, yell at them and even threaten them, but this will not produce the results that you really want.
The Balanced Scorecard is a method that can tell you how well you are executing your overall strategic initiatives. For the BSC to work, the owners need to agree on the firm's vision - thus starting the process of creating one firm and a team. The BSC asks you to look at a number of key areas of the firm:
* Internal processes;
* Employee growth; and,
For each of these areas, you need to establish objectives, and identify your measures for success and a target goal. Here's an example: Assume that under the clients area, your objective is to establish long-term client relationships. Your measures are the amount of quality time (non-billable) that is spent with key clients to understand their business and needs, and key client retention rates. Targets could be having a key client retention rate of 98 percent and spending 16 hours per year with key clients to understand their business model and needs.
The BSC requires you to do one more thing. Having set the client objective of establishing long-term client relationships, what else needs to be considered to make that objective a reality? From an internal processing perspective, you will need some sort of customer relationship management system. Maybe it's just using Microsoft Outlook or Goldmine, or maybe it is as simple as an Excel spreadsheet. If you don't have a system in place, you won't be able to keep track of who is calling on which client.
In addition, your owners and staff are not just going to start spending time with clients talking about their business models and needs unless you provide them with additional training and help them develop new competencies. You can see how these areas are becoming interrelated.
Developing the compensation link
If we have four or five areas and two or three objectives in each one, you have created about eight to 15 measures. That might be too many to tackle, so you will want to limit yourself to six or seven key measures that will drive the best results for the firm.
Consider the table on page 9 ("Keeping score"), which has six objectives in four areas. Each objective is given a target. The target lets the firm know how successful it is. Finally, the firm decides what weight to give to each objective.
In this example, the firm has agreed to pay up to 10 percent of compensation in bonuses, provided that the firm overall achieves or exceeds the targets set. Let's say that this firm has achieved the following objectives: Revenue growth, profitability increase, client satisfaction and employee satisfaction. It failed to achieve the employee turnover and reduction in turnaround time goals. Therefore, the firm will pay out a 7 percent bonus to all employees of the firm.
While no method is ever perfect, this is another approach to consider when trying to get your strategic initiatives implemented.
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