Do you know that in ancient Greece, business owners collected their overdue bills by throwing rocks at non-paying customers?

Today, it seems that clients should have the right to stone some of the consulting firms that don’t deliver the value they promised.

So what causes this discrepancy between the promised value and the delivered value?

It seems that the problem lies high up in the management hierarchy of consulting firms.

But before delving into the subject, let’s take…

A closer look at history

Once upon a time, consulting firms were happy to acquire their clients because they knew they were positioned as respected experts and potential clients wanted to talk to them about whether or not to hire the firm.

Peer-level connections between buyers and sellers were vital. Senior managers at the buyers’ companies interacted with high-level people at consulting firms.

Then someone had an amazing idea to be more efficient…

“Hey, we’re professionals. Customer acquisition is too low a role for our highly respected stature. Let’s hire some privates to attract customers on a performance reward.”

But this mindset has created an attitude among many consultants that selling their services is too short for their stature, and they have decided to bring together separate sales forces on a pay-for-performance basis to generate new business.

These sellers are not subject matter experts. They are salesmen selling used cars for a while, then used coffins for a while, and now they are selling consulting services.

There is the mistaken belief that there is a direct correlation between the commission of sellers and the income they generate.

But not all income is the same, and not all customers are the same.

And to maximize the return on seller revenue, some companies include multiple lockouts in their contracts to limit seller commissions.

But have we thought about the attitude of these commission salespeople who are hired as mercenaries, and what happens when they start operating as mercenaries?

Most consulting firms have never looked at the dark side of pay for performance.

So, it’s time for us to do it here and now…

So how does the pay-for-performance system work in consulting firms?

Consulting firms are supposed to be non-compartmentalized business structures.

In industrial plants you will find free standing silos where very often the left hand has no idea what the right hand is doing. And it works because they are independent silos. It’s like a symphony orchestra. You play your part of the piece from your sheet, and that’s it. You look at the conductor and your sheet music.

But a consulting firm is like a jazz combo. There is no sheet music. There is no driver. The members pass the role of the next only in a fairly even manner. They can switch from bebop to R&B in a split second, and no one will miss a beat.

But can this capacity of the whole band be divided into individual performers? Yes, a pullover can keep you warm in winter, but which fiber keeps you warm? Which fiber do you want to reward for helping you survive the winter?

Consulting firms sell 5-6 or even 7 figure commitments, and there is no way one person can be selected to complete that sale. It is always a team effort on both the buyer and seller side.

Some Disadvantages of the Pay for Performance System

1. Ignoring the company’s perfect customer profile

Consulting firms need to have perfect client profiles to attract the kind of clients and the kind of engagements with which they can do their best work.

But when salespeople are on a pay-for-performance system, they don’t care what kind of customer they get. They need their commissions to pay the mortgage, pay the children’s college tuition and put food on the table. So all they need is a living body with a check in hand that clears at the bank, to get paid. From their point of view, the rest is simply irrelevant.

Yes, it’s nice to have great clients, but they can’t afford to turn down money.

And even if they get problem customers, who cares? It is the consultants who have to work with them, not the salespeople.

2. Focus on what the seller wants

We only have 100% of our focus and energy. The more sellers focus on what they can get out of the deal, the less they will focus on prospects.

According to RainToday, an online knowledge base and research repository for professional services, the #1 complaint from clients is that consultants don’t listen and are too quick to recommend solutions…often the wrong ones.

And in a performance reward environment, which is really a scarcity-driven environment, sellers have to focus on what they can get because they’re out there on a sink or swim basis. If they don’t make the sale, they starve.

3. Neglecting the long-term success of the company

If salespeople are paid for short-term “quick bucks” performance, they can’t focus on the long-term success of the business.

The problem with fast money is that the margin is usually quite small. There seems to be an inverse ratio between the speed of customer acquisition and the margin of their projects.

Focusing on quick money also means this company doesn’t have built-in longevity. Here today, not tomorrow. So sellers are also keeping their eyes open for greener pastures before these pastures die.

4. Compete without collaborating with colleagues

Now if salespeople get paid individually to make some quick bucks, what is their incentive to help their colleagues? Nothing! Not a sausage. They actually have a vested interest in stealing opportunities from my colleagues so they can look better in the eyes of their managers and make more money.

The way I see it, there’s a lot of competition in the market outside of the company, so it’s best for all partners to work together to deal with that external competition through internal collaboration.

But this internal collaboration almost never happens. So, we go back to the competition to do our personal numbers.

5. Fall to fully engage

If salespeople are on a pay-for-performance system, they know they don’t really belong to the company, and if something undesirable happens to them, they can’t expect the company to defend them. They are 100% expandable.

It reminds me of a scene in the movie Ben Hur, when the new consul, Quintus Arrius, goes down into the belly of the galley and makes an announcement to the slaves…

“You are all damned men! We keep you alive to serve this ship! So row well and live!”

This is the essence of individual rewards, although in the galley the slaves had to work as a team. You can’t outdo others. Individual rewards create individualists who don’t care about their mumbo-jumbo gear. They want to earn your money and they know how to get it.

6. No loyalty

If the sellers are not from the firm, then they do not have to offer their performance exclusively to the firm. They are essentially free agents, so whatever business they conjure up, they are free to offer it to anyone. As mercenaries, they are free to offer opportunities to whoever they see fit and who pays better than their own company.

Some may call this treason, but my opinion is that you can’t betray an institution you don’t even belong to. And if you’re employed on an “Eat what you kill” basis, I don’t feel like I belong in the institution.

7. No expectations, just hope

As the manager of these vendors, you have no right to expect your vendors to produce anything. But you have the right to expect them to. You don’t pay them, so they don’t even belong to your company.

Expectation is something we earn the right to when we make an investment. A beggar can only hope to receive some food. He wants it for free. A paying guest has the right to expect to be served in a restaurant. She is willing to pay for it.

In the commission-type compensation structure, producers receive around 10-15% of the value they have produced, with 85-90% going to the employer or client. That’s great, but I also think that whoever is the ultimate beneficiary of value, the party that gets 85-90%, should also invest in production capacity. And that’s a base salary to show that this salesperson is actually part of the company.

This is why the money that companies ultimately earn is called their return on investment. The current commission structure feels like someone else’s return on investment. A return for the company on the investment of time, money, effort, education, etc. of the sellers.

Otherwise, the job feels like communism. The people at the front work hard and produce the value, then the communist party grabs it, takes it away and in the stores sells it to the producers at a huge profit.

In summary

I watched a presentation by Dan Pink a while back, titled “The Amazing Science of Motivation.”

According to Dan, instead of paying for performance, it’s better that we give people…

• Autonomy: giving people control over how, when and where they work (ROWE)
• Mastery: Helping people become better and better at work that matters
• Purpose: Connect the dots between what people do and some purpose greater than themselves

A 2005 MIT study (D. Ariely, U. Gneezy, G. Lowenstein, and N. Mazar, Federa; Reserve Bank of Boston Working Paper No. 05-11, July 2005) reports that…

“As long as the task involved only mechanical skill, the bonuses worked as expected: the higher the salary, the better the performance. On eight of the good tasks we examined in the three experiments, higher incentives led to worse performance. .”

The London School of Economics study by Dr. Brend Irlenbusch reports that…

“We found that financial incentives can have a negative impact on overall performance.”

Therefore, high individual performance does not necessarily translate into high company-wide performance.

Let’s take a look at the open source movement. A group of unpaid, uncertified misfits have created Firefox and Wikipedia without any strict administrative oversight and control and pay-for-performance.

And the market share of Microsoft’s Internet Explorer, developed by highly paid professionals, continues to shrink.

And where is the competition from Wikipedia, Encarta from Microsoft, again, developed by highly paid professionals?

Encarta has already disappeared. Internet Explorer is about to disappear.

How is it possible? People are supposed to be too dumb to produce anything without the close scrutiny of higher life forms called management. And they’re supposed to be too lazy to get their butts off without the proverbial carrot and stick.

But it seems that people with autonomy, mastery, and purpose do.

In my opinion, no one should choose a profession just because there is a lot of money to be made in it. I think people should take the time to discover their “vocations” and master that skill to such a high level that the market is willing to pay a premium price for it.