By Jess Scheer
Most firm leaders remain optimistic about their growth prospects in 2011, but are worried about significant challenges in 2012 and beyond. That’s the diagnosis of the most recent “pulse check” of more than 100 consulting partners and VPs who participated in a Consulting magazine survey in January and then again in July. First the good news: short-term optimism is high and getting higher.
More than 80 percent of firm leaders anticipate that their firm’s revenue will improve this year. In fact, 51 percent anticipate double-digit improvements. Similarly, about four in five firm leaders also say their firm is on pace to grow their net profits in 2011, including four out of ten who predict that their bottom lines will improve by at least 10 percent.
Compared to an identical survey conducted in January, the share of consultants anticipating double-digit improvements in their top and/or bottom lines is up in the July survey. However, that optimism may be short lived. The majority of firm leaders also reported that it is becoming more difficult to retain existing clients and 70 percent reported no improvements in attracting new clients. Most firm leaders also report it’s taking longer to sell smaller and smaller projects—projects that are coming under ever-increasing pricing pressure.
Meanwhile, the majority of firm leaders also see no improvement in meeting compensation expectations, better managing utilization rates or curtailing voluntary attrition—internal challenges that will likely only be exacerbated by the external client environment.While there is little firm leaders can do to change the macro-economy, and clients’ precautionary reaction, there are proactive steps that can be taken to address some of the internal issues.
If consultants aren’t bringing in more per hour—because of lower hourly billing rates or reduced utilization rates or both—it’s going to be increasingly difficult to afford higher salaries. Instead of entering a salary war you can’t win, change the battlefront. Especially in a time of uncertainty, it’s crucial to be as transparent as your firm can culturally accept when it comes to firm performance and how that translates to compensation.
The wave of pent-up demand that firms are currently navigating through can give rank-and-file consultants an incomplete and inaccurate view of the long-term horizon. If you’re considering curtailing first-quarter bonuses, even just a little, to preserve cash (a pragmatic move many firms will likely consider adopting), it’s all the more important to share that thinking throughout the firm. Annual reviews and bonus awards should not come as a surprise. When they do, consultants worry that their firm is in worse shape then they thought or firm leaders aren’t recognizing their individual contributions. Either scenario will increase the coming spike in voluntary attrition.
Based on our detailed study of employee satisfaction, compensation satisfaction has less to do with the size of one’s paycheck or bonus and more to do with how they are being acknowledged for the work. In other words, firm-wide thank you emails or other cost-effective steps can do more to improve morale than an increase in salary.
Firm leaders may also want to consider the frequency and timing of variable compensation to discourage the annual wave of departures that often come after bonuses are paid. Over the last five to seven years, in an attempt to better manage profitability through lean times, bonus pay has increased as an overall percentage of most consultants’ compensation packages. As a result, it’s become a milestone for consultants planning on defecting.
One alternative might be to pay bonuses twice-annually or even quarterly. While not changing the size of the compensation pool, it does diminish the annual uptick in attrition following annual bonus distributions. It also gives firm leaders the excuse to have more regular, and transparent, firm performance conversations.