I’ve blogged at some length about eight important measures for managing Professional Services Organisations (PSOs), and in some cases, I’ve looked at how the numbers might be improved. This post concentrates on how these measures can be made to work with the responsibility structures and motivational policies of a PSO. In every organisation you’ve got to reward what works.
PSOs depend for their value on the professional staff they employ. A successful PSO must motivate its staff. But how?
In the notes that follow, you’ll see that I concentrate mainly on material bonuses. That’s not to say that other kinds of encouragement don’t work. Quite to the contrary, the most effective motivation derives from good leadership, from the encouragement, congratulations, and support you give your staff, as well as the understanding and help you give them when things go wrong.
However, this is not a book about business psychology. Rather, I am concerned with the material bonuses that also play a part in motivating staff. After all, with the best leadership in the world, you won’t get your staff to work for nothing, and material bonuses (in short, money) are taken as proof that you mean what you say when you show appreciation in other ways.
In the organisations I’ve managed I’ve tried a number of methods, most of them directly monetary:
- Bonuses based on utilisation
- Bonuses based on chargeable utilisation
- Bonuses based on invoiced value
- Team bonuses based on team utilisation
- Team bonuses based on chargeable utilisation
- Team bonuses based on invoiced value
- Bonuses partially based on qualitative measures such as quality, client approval, communicativeness, team spirit, etc.
- Non-financial rewards, such as additional training, promotion, opportunities for influence, etc.
None of these works comprehensively, and if you adopt one or another of these schemes, you’ll be frustrated to find that they don’t always work. Some of them work for some of your staff and some of them work for others. None works for all.
Is this surprising?
No, and for the obvious reason that your staff are human (presumably), and each one of them is different. Moreover, being highly qualified professional staff, they are probably more than usually intelligent, proud, ambitious, and imaginative. Each works for different reasons. That said, you need a number of different tools to apply appropriately and sensitively.
In this and later posts let’s look at motivation at four different levels in a PSO:
- Professional Staff – Individually based motivation
- Professional Staff – Team based motivation
- Team Leaders
- Project Managers
- Business Unit Managers
- Company Managers
At all levels, motivation schemes must follow the following broad principles:
- Motivation must reward success that benefits the PSO as a whole. This is your requirement, not theirs.
- Success must be based on clear measures
- What is measured must be at least partially within the control of the staff you are trying to motivate
- What is measured must also be within your control as a manager
Individual Bonuses for Professional Staff
Salesmen often earn as much income from bonuses and commissions as they earn in basic salary. Material reward is high on the list of a salesman’s goals, and human resource experts all over the world will usually advise you not to employ a prospective salesman unless he or she talks about money and reward early in the recruitment process.
The ethos of consulting and the professions is somehow different, and when we are looking for a new job we usually pretend, at least at first, a lack of interest in financial reward, as if we are motivated in the main by intellectual concerns. Of course, this is generally snobbish nonsense, but even so, it is at least partly true that motivation for professional staff is complex and isn’t based solely on material reward.
But if not solely, then at least partly, and it is sensible to design your bonus schemes mainly around revenue and profit, as you do for salesmen, though in my experience it is unusual for bonuses to exceed 20% of professional staff salaries, at least at the more junior levels.
Bonuses are designed to increase revenue and profit and must therefore be related to these measures in some way – if not strongly, at least loosely. Such schemes are also designed to protect you from expense when times are lean. These are two essential sides of the same coin.
At the same time, the achievement of bonus payments must be within the scope of control of individual members of your professional staff, otherwise the incentives will not work. If profit is won or lost regardless, why work harder or better?
It might seem that the best incentive, one that is both sufficiently individual (based on analysis by employee), and comes closest to relating reward to profit, is employee gross margin, based on invoiced revenue (ignoring WIP) and the standard or actual direct cost of providing the services that are invoiced. (WIP is best ignored, on this view, because its conversion to revenue and cash is uncertain.)
But this measure is unsatisfactory, for a number of reasons:
- Employees have no control over the timing of invoicing, and become easily frustrated if their work is not rapidly rewarded.
- At junior levels, employees have little control over the rates at which they are invoiced. Nor do they have any say in the client’s contractual terms, these perhaps being based on fixed prices or discounted fees. They may be penalised because of underestimates or poor negotiation by staff that are more senior.
- At junior levels, employees have little control over the work that they are assigned. They may be unfairly overlooked when there is lucrative work to be done, and too often assigned to internal non-revenue generating work.
- Employees will be demotivated from doing important internal non-revenue generating work, such as sales support work, or account management.
Although a gross-margin based measure has a strong link with profit, and is attractive for senior management for this reason, it’s unlikely to work well. It is better that we retreat from this ‘strong’ link to profit and consider another option. Perhaps ‘chargeable utilisation’ could work more successfully.
‘Chargeable utilisation’ would link bonus payments to the amount of time (as a proportion of available time) spent on chargeable projects, regardless of the extent to which that time is converted into revenue. This solves the ‘timing’ problem since this measure is available as soon as timesheets are in. It also solves the ‘value’ problem, since we are rewarding utilisation, not realisation or low standard fee variance.
However, it doesn’t solve the second pair of problems that arise with the ‘gross margin’ based bonus. Employees don’t always control what they do, nor do we wish to demotivate essential non-chargeable work.
This leaves us with ‘utilisation’, a measure, as we have seen, of the proportion of time an employee spends on projects that ‘add value’, in some sense, to the company, whether by revenue, or know-how and asset building.
But there are two problems, even with this measure:
- We are left with only a loose link to profit or gross margin
- There is a risk that utilisation will rise without reward to the company, unless internal projects are controlled with the same rigour as external projects.
In short, none of these schemes is ideal. Each has shortcomings.
Of course, in some professions and in some circumstances, some of the issues I’ve listed don’t arise, but in designing a motivation scheme, it is crucial that you understand how behaviour changes as a consequence of subtle differences in measurement.
In practice, I have seen various bonus schemes succeed and fail, for both the employer and the employee. However, what is essential to any scheme that succeeds is clarity and openness of measurement.
In general, I believe a mix of measurements works best to motivate individuals:
- Utilisation, with the proviso that internal projects are well controlled
- Qualitative measures (teamwork, promptness with timesheets, quality of work, client approbation, etc.)
- A share in a team based bonus, which is more strongly tied to revenue and gross margin.