Most consulting firms have several key partners that contribute to the company’s top line. Unlike other businesses, consulting firm’s reliance on these partners is extremely high and keeping them happy and maintaining a sense of fair compensation becomes central to the survival of the business. We enlist a few of the most popular compensation models for consulting firms out there today.
- Straight salary/minimum income guarantee+bonus/incentive:
Such type of compensation model increases client base by offering bonus or incentive to one partner for bringing in new clients. This not only rewards the contributions of the individual partner but also works on simple principle that one partner will be simply rewarded for referring the partner firm to the client organizations. This is certainly the most effective compensation model that has been adopted by many firms worldwide.
- Equal share partners:
As the profit/loss is equally shared regardless of the fact that one of the partners might be underperforming or over performing. This model nevertheless gives a sense of security to both the partners and is based on the assumption that both the partners are putting in equal effort to generate revenue and increase client base.
- Productivity-based compensation:
The productivity based compensation model results in a highly competitive environment among the partners. This results in increased efficiency and productivity to claim individual rewards. This compensation model is highly effective if adopted by those firms that need increased productivity for revenue generation.
- Risk-sharing Model:
A fair compensation model shares risk associated with achieving a certain outcome. One of the wisest ways adopted by the risk averse firms towards mitigating the risk is to face the risk collectively i.e entering into a partnership with another firm. The two firms collectively work towards minimizing the risk and hence the risk is not only shared but minimized as well.
- Associated Partners:
An associated partner can either be an equity or non-equity partner depending on the goals of partnership. An associate partner either helps in generating business by bringing in clients or provides commission for doing so. The benefit of such independent partnership is that it enables both the partners in taking autonomous decisions.
Before entering into a partnership, be clear of the purpose of partnership so that is proves to be a wise choice for you and your partner. The decision regarding the type of compensation model that should be adopted depends strongly on individual expectations and objectives of both the partners. Hence a careful approach proves to be highly rewarding in the long term.