9 Pages, Grade: 1
1 Case Study M&G
1.1 Challenges and Changes
1.1.1 Goal Definiton
1.1.2 Current Compensation System
1.1.3 Performance Measures
1.1.4 The Economic Turndown
2 Recommendations and Consequences
Case Study M&G
Putting myself in the shoes of Kelly Browne, CEO of the PR agency Marshall & Gordon, I believe it is nearly impossible to design something like the „ideal compensation policy“ fitting everyone’s needs. However, I know that there are several recommended guidelines with fundamental properties for compensation systems that should be taken into serious consideration by executives while creating such systems.
A compensation system should consist of: a statement of overall objectives, the relative importance of compensation, general performance measures, competitive reference points, competitive positioning, internal equity and consistency, communication and involvement of employees, and governance.1
As for the category of „involvement of employees“, Herzberg’s motivation theory stipulates that factors such as recognition, achievement, increased responsibility and opportunities to learn (within the company) are extremely important factors for employees, besides payments and benefits.2
In the following case study I will attempt to analyse the current incentive system with respect to the given questions using numerous quotations.
The text does not give the reader any information about defined main objectives or thresholds, but only gives a plain understanding about the firm, the work and its employees. For example, based on initial internships, new associates are expected to become senior associates within two to three years and senior associates to principals within another five to six years (cf. p.4, l.27f.). A principal can be promoted to a partner anywhere from within another three to six years, primarily based on the amount of billed revenue and the establishment of long-term relationships with potential clients (cf. p.4, l.29f.). The compensation system needs clearly defined target settings that reference the internal promotion and compensation system. In addition, a company-wide statement of overall objectives should be carefully formulated.
One of the main occuring challenges mentioned in the text is how the company assigns credit for successfully carried out projects. It appears that a perceivable tension springs from rewarding origination in the same way as execution. The projects are „double-counted“ both Case Study M&G 3 for origination (O) by the partner and the execution (E) by the partner or principal (cf. p.4, l.39ff.). Partners and principles are compensated with a combination of a salary and annual premiums (cf. p.8, l.31ff.) depending on the the number of originated and executed projects (cf. p9, l.3). Moreover, the salaries of the partners and priciples vary substantially (cf. p.8, l.32ff.), which can lead to internal conflicts. These conflicts can also arise while handing over projects and during the negotiation of bonus splits by allocating „O“ and „E“ credits (cf. p.8, l.2). So there seems to be a bias in terms of how these bonuses are calculated, which makes it even more difficult to structure fair compensation.
As for the target achievement, some consultants might tend to focus rather on the quality of the project results than on the number of generated projects, which are mostly used for tallying individual success (cf. p.9, l.11f.). Most of the consultants are afraid of decreasing their fees by handing over project execution (cf. p.7, l.3f.), mentoring junior consultants or doing non-client-related work (cf. p.8, l.28ff.). Moreover, there is always a predominant fear faced by the M&G consultants of being considered „underwater“ and therefore being ineligible for bonuses (cf. p.9, l.5). While outstanding performers (in terms of generating new clients) will receive great benefit from high incentives in this uncertain compensation system, average performance is not valued as highly. All these mentioned points and the ongoing rumours about the compensation system (cf. p.2, l.8f.) might cause serious effects to the overall business and the goals and trust of the stakeholders (e.g. owners, employees, current/prospective customers).
Furthermore, all employees below the rank of principal (e.g. support personnel) and all nonconsulting employees are salaried or paid by bonus checks given by the consultants (cf. p.9, l.18ff.). From this follows that all these employees in lower posititions depend on the generosity of the higher consultants, because they are excluded from receiving „O“ or „E“ credits. The dynamic among the organizational structure might suffer from the resentment and lack of motivation among the employees, which impacts the planned expansion of services upon the executive positioning practice (EPP) and the concomitant product differentiation (cf. p.4, l.8ff). A united company vision among all employees is therefore hard to achieve.
For example, Janice Lu, a San Francisco-based partner responsible for important biotechnology partners, lets out her frustration about the increased responsibilities she has to deal with since being in a management position without receiving any additional compensation (cf. p.5, l.22f.). She also claims that the two new lateral hires she is responsible for, one partner in the Healthcare practice and in the EPP, are not interested in acquiring new clients or achieving target numbers, because both were not due for bonus evaluations until 2013 (cf. p.5, l.5ff.). Instead, they were continuing to execute on business they had acquired before even joining the company (cf. p.5, 10f.). The system does not exclusively reward people that have put time and effort into long-term relationships with clients, but also lends itself to abuse by individuals who value pursuing their own economic interests over developing long-term value-creating networks for the company. It is said that the consultants lack loyalty towards their own company, that they are quickly moving between competing firms (no consistency) and often take important clients with them (cf. p.3, l.8f.).
1 „8 Components of an Effective Employee Compensation Plan“, published March 27th 2013, http://hr.blr.com/HR-news/Compensation/Compensation-Administration/zn-8-components-effective- employee-tnsation-pl, accessed March 22nd, 2015.
2 Cf. Haberkorn, K. (2002), p.153
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