In previous posts I’ve written about how you might reward Team Members (see Team Members),, Team Leaders and Project Managers (see Team Leaders and Project Managers) in a Professional Services Organisation (PSO).
Recognising, first, that everyone is motivated in different ways and that motivation is rarely a matter only of material reward, these are my recommendations:
- Motivate team members 40% by utilisation (not chargeable utilisation), 40% by team gross margin variance from plan, and 20% on qualitative measures
- Motivate team leaders 40% by utilisation (not chargeable utilisatiion), 40% by team gross margin variance from plan, and 20% on qualitative measures
- Motivate project managers 40% by project realisation, 40% by project gross margin and 20% on qualitative measures. Ensure that project managers and more senior staff are involved in estimating, scoping, and agreeing between themselves a reasonable project plan irrespective of the commercial decisions made by commercial and sales staff
In this last post, I’m concerned with the bigger bosses: Business Unit Managers and Company Managers:
Bonuses for Business Unit Managers
We can assume that Business Unit Managers have many of the same responsibilities as Team Leaders but with the added responsibility of commercial negotiation, employment terms and conditions, WIP management and debt collection. However, we can also assume that they do not have control over company overhead costs, though in their particular business unit we can expect that they will have control over sales and marketing costs associated with their unit.
So, since Business Unit Managers control all conditions for utilisation, realisation, standard fee variance, standard cost variance, WIP Days and Debtor Days, they should be judged and rewarded based on gross margin, with sales and marketing costs included too, if they control these, and WIP Days and Debtor Days. Qualitative measures should play a smaller part in the overall calculation.
Bonuses for Company Managers
In the case of Company Managers, we can assume that they control everything, ultimately, except demand in the market. But since they are responsible for the company’s response to that demand, as well as quality, project execution, sales, marketing, salary levels, fee levels and all other overheads, their bonus should be based almost entirely on profit in relation to profit targets, unless other goals such a growth, are of balancing importance.