In a previous post, I described how we’d experimented with measuring the impact of our work while working with a client in the energy sector. I also shared some of the issues and dilemmas that this raised for us.
When the same client suggested a performance-related fee structure, this naturally intensified some of the dilemmas described, as well as forcing us to consider some additional issues. This is how we proceeded and something of what we learnt…
What was the set-up?
i) We devised a simple bonus structure linked to progress against five ‘effectiveness improvement’ headings – as measured by the subjective ‘scores out of ten’ offered by members of the Extended Management Team (EMT) – see previous post.
ii) We reduced our fees by a certain percentage (X) – and then the bonus structure worked in a way that would either a) leave us with this loss of X if all scores did not reach a certain threshold; b) compensate this loss exactly if all scores reached or just exceeded this threshold; c) allow us to gain by X – if scores reached a considerably higher threshold.
iii) Scores were reviewed mid-way through the work, and at the end of the work – and our pay for the preceding period was then adjusted accordingly.
iv) This agreement was kept between us and the MD & HR Director only – so that other EMT members were not tempted to ‘leverage’ this arrangement for or against us, according to their individual dispositions towards the work and us personally.
v) We also agreed with the MD & HRD that we would treat these arrangements as a ‘learning experiment’ – for them as much as us – and be open to adjusting them according to what we learnt as we went.
How did we do?
At the half-way point, progress had been made, but only such that the scores (just!) reached the lower threshold — so we simply recovered X. At the end of the work, we were awarded the additional bonus of X, despite one of the scores not quite meeting the stretching criteria set. The client explained that this was due to our exceeding expectations with respect to a number of other parameters, which weren’t factored into the original performance measurement framework!
Some learning and reflections…
a) We believe that the performance-related pay structure did not incentivise us to work in a markedly different way than we would otherwise have done. Indeed, despite the danger that it could have led us to drive, or own, the work in an unhelpful way – undermining our need to build client responsibility for the work – we continued to focus on what we saw as the most powerful levers of change. It was vital to the success of the work that we, the consultants, did not overly lead or push particular forms of progress. This bonus structure could therefore have compromised progress and success. However, by mutually supporting our own patience and deftness as consultants, and making time with the MD and HRD to manage expectations as we went, we seemed to avoid this!
b) It became clear during the work that some of the five parameters needed more focus and were more critical to key aspects of the success of the business overall than others.
c) The mid-way point scoring revealed a clear split across the EMT in how progress against the five parameters was being seen. The senior management team (SMT) within the EMT – with whom we’d done most work – were experiencing and seeing greater change and more benefits than the rest of the group. This posed some further dilemmas about our focus: e.g. should we focus more of our time and resource on the junior EMT members?
d) Although there was clearly a danger that we would prioritise work that would directly impact the five key scores quickly, but perhaps not sustainably, we found that this wasn’t actually much of a temptation. Perhaps this was due to the fairly modest size of X, but we’d rather think that we would anyway be much more strongly guided by our sense of what next needed attention, given what was emergent and our sense of the ‘whole system’ dynamic.
e) We were left wondering how best to safeguard our integrity when working in this way – given that the trusting, ‘partnership’ nature of our relationship with clients means that we are often able to influence subtly many factors that could sway people’s scoring of progress at any one time. E.g. in the above case, we were sometimes in a position to influence the mood of a meeting prior to the scoring exercise – which would then affect our remuneration… (Of course, this is something we claim to have resisted!)
We’re be keen to hear what you make of the above, and whether you could imagine a similar contractual set-up working in your organisation. Or are the dilemmas and potential for dysfunction and/or manipulation too great from your perspective? Do let us know!
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