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By Philip Thomas – Advisory

Employee Stock Ownership Plans (ESOPs) in the USA offer benefits for both employers and employees. They have the potential to reshape the traditional employment relationship and contribute to a more inclusive and participatory culture.

For some US consulting firms, ESOPs may be the best and most viable means of allowing employees to become shareholders in the company.

Here we offer an overview of the potential benefits of ESOPs for both the employer and employee.

Advantages for the employer

The following are some of the key potential positives from an employer perspective:

• Increased employee retention and motivation - Employees with a stake in the firm are likely to be more committed and engaged.
• Increased productivity - Employees may well feel a stronger sense of responsibility and ownership in their work.
• Recruitment advantages - Potential employees may be attracted to the prospect of becoming owners and sharing in the company's success. In addition, ESOPs provide employees with an opportunity to accumulate wealth over time, especially as the value of the company increases, which can be an important part of an employee's overall compensation package.
• Tax advantages - In the United States, there are tax benefits for the employer as contributions to the ESOP trust are tax-deductible.
• Improved long-term company performance - ESOPs help to promote the goal of long-term success but not at the cost of short to mid-term success.
• Reinforcement of positive corporate culture and values - Employees are more likely to embrace a culture of teamwork and collaboration when they have a stake in the firm's performance.

Advantages for the employee

The following are some of the key potential positives from an employee perspective:

• Gaining an ownership stake - When employees become partial owners of their firm, it can create a sense of pride and loyalty, increase job satisfaction and strengthen connections to the organisation.
• Increased financial rewards - As the firm performs well, the value of the ESOP shares may increase, providing employees with financial rewards and the potential for wealth accumulation.
• An additional stream of retirement savings - ESOPs can serve as an additional and significant retirement savings vehicle. They allow employees to accumulate further wealth over their tenure with the company and help to offer a diversified set of incentives.
• Job Security - Employees may feel more secure in their jobs as the firm’s ultimate success will be more likely given the additional financial incentives for all individuals.
• More desirable culture - Employee-owned companies often foster a unique company culture based on shared ownership values, teamwork, and collaboration. Employees may find this culture more fulfilling and supportive.
• More transparency from the firm - ESOPs often promote transparency in financial matters and firm performance, as employees have a vested interest in understanding the factors affecting the value of their ESOP shares.

ESOPs for mutual growth and success

Through the alignment of individual and organisational interests, ESOPs pave the way for a future where shared ownership values fuel mutual growth and success.

While not all US consulting firms will be in the position to offer an ESOP, those that can’t would be well advised to consider covering many of the potential positives that ESOPs offer via mutually beneficial and well-balanced remuneration structures.

We are at your disposal for further questions and suggestions regarding how to optimally design your company’s compensation package and implement ESOPs or other compensation elements.

Contact us here.

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Vencon Research International is a leading provider of compensation benchmarking and research as well as of compensation and performance-related consulting services for professional service firms, especially for audit and tax, management consulting, and IT services firms. Vencon Research International provides services to a full range of clients in more than 75 countries worldwide and is proud to name more than 85% of the world’s major consulting and/or professional services firm its clients.

By Yao Tang - Business Development

The goal of effective benchmarking is to ensure that an organisation's compensation structures align with the skill levels and expertise of their employees as well as promote internal fairness and competitiveness in the external job market.

In our last article we looked at the significance of acknowledging in-demand talent, or employees and candidates who possess so-called “hot skills”. In this article we’ll be taking a closer look at the role of skills at a broader level, to find out their relevance in the benchmarking process.

The role of skills in determining compensation

A basic framework for approaching skills in compensation benchmarking should consider the following steps:

1. Identify key skills: determine the essential skills and competencies needed for each job role.
2. Define skill levels: establish a clear framework for categorizing skill levels, such as beginner, intermediate, and expert.
3. Job role mapping: match specific skills to corresponding job roles to create a comprehensive skill-job matrix.
4. Gather compensation data: collect data on existing compensation packages for employees in each role.
5. Skill-based compensation analysis: analyse how compensation aligns with skill levels to identify disparities and opportunities.
6. Internal assessment: evaluate if the current compensation structure adequately rewards employees for their skill levels.
7. Adjusting compensation: make necessary adjustments to compensation packages to ensure they reflect skill-based benchmarks.
8. Competitor analysis: compare your organization's skill-based compensation with competitors to stay competitive in the talent market.
9. Regular review: continuously monitor and update compensation packages to adapt to changing skill demands and market trends.
10. Communication: effectively communicate compensation changes to employees to promote transparency and understanding.

While many of the above steps are the bread and butter of any efficient HR department, there are key steps that will also require external input. Finding a reliable and effective benchmarking provider is essential when it comes to establishing the market value of specific roles, related skills, and the rates paid by competitors in the market.

Skill-based benchmarking

What emerges from our experience in regards to how special competencies are translated into compensation models, is that specific skills or qualifications are a) not always reflected in a higher salary b) only rarely separately remunerated on a skill-by-skill basis.

Exceptions may be found when it comes to specific “hot skills”, often in the IT-realm, which may reflect in a higher salary or extra salary payment (though often only when this IT skill is actively deployed).  Even in these cases, there is not a direct connection between remuneration and specific skills, as:

a)       Unique & in-demand (i.e. scarce) skills at time of hire/promotion can over time become more ubiquitous in the market amongst more incumbents (and therefore would not require unique compensation).

b)      Additional compensation afforded a consultant for a unique/in-demand skill is difficult to retract once said skill becomes more ubiquitous.

c)       The exact number of skills acquired by an incumbent does not automatically align with the execution of some/all of those skills while the consultant is part of a consulting project, i.e. resulting in overpaying for unused skills.

What we can confirm from observation, is that specific skills are often a deciding factor in staffing the consulting position itself (as opposed to added remuneration). Skills are important in as much as they are linked to a particular role, but additional skills can also imbue an advantage to achieve greater success in the hiring process, and thus incur a more likely/faster career progression to the next career level(s).

Here at Vencon Research we approach our remuneration benchmarking analysis on a “type of consulting/advisory work” (i.e. line of business) basis, with the inherent understanding that incumbents are expected to have a wide variety of skills in order to be hired and perform their duties effectively. We follow a meticulous process of aligning a firm with the most suitable competitors, precisely matching job roles (while taking into account required skills), conducting business-oriented mapping, and incorporating appropriate compensation elements. This meticulous approach ensures that each of our clients receives the utmost granularity and individuality, optimizing their compensation strategy.

In this sense skills are essential determinants in defining job roles for accurate matching against competitors in the benchmarking process. However, with the exception of some "hot skills" they are not usually assessed as a value component of compensation themselves.

For more information on this topic or on how you may successfully respond to the issues raised in this article, please contact Vencon Research – as always, we are happy to assist you.

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Vencon Research’s 2022 Pulse Survey provides an insight into the effects of currency devaluation and inflationary pressures in Turkey. The survey results highlight the challenges faced by firms in Turkey in retaining their employees, and the measures they are taking to address the financial hardship faced by their employees.

1.  CHALLENGES IN RETAINING EMPLOYEES

The study revealed that firms in Turkey are facing challenges in retaining employees, with a significant increase in voluntary attrition. As a result, 67% of firms surveyed have increased their hiring efforts. Despite this, half of the firms reported that their employees are experiencing financial hardship.

2.  RESPONSES FROM CONSULTING FIRMS

To address the issue, all firms reported adjusting their compensation structure in the last 12 months, with 67% of them attributing this to both inflation and currency devaluation.

The adjustments were made for all types of employment contracts, with two-thirds of firms adjusting based on job role, function, and/or career level.

Measures taken to combat inflation and currency devaluation included increasing base salary, offering one-off or multiple payments, and increasing bonus/variable pay. Interestingly, only 17% of firms used "pegging" of compensation to a foreign currency.

3.  DRIVERS OF COMPENSATION DECISIONS

The most critical factors driving compensation were the cost of labour and inflation, with other contributing factors including cost of living expenses, fluctuations in exchange rates, and attrition rates.

About 50%of the firms were unable to make predictions about the anticipated situation in the next 12 months in Turkey. However, most firms are planning to make changes to their compensation model in the coming year.

Half of the firms plan to raise the base salary by over 20%, one-fourth plans to boost the bonus by 20%, and another quarter plans to raise the bonus by 11% to 20%.

4.  INDUSTRY REMAINS PROACTIVE

In conclusion, the survey shows that businesses in Turkey are taking proactive measures to retain employees and address their financial hardship in light of inflation and currency devaluation. It also highlights the need for firms to review their compensation structure more frequently than the typical once-per-year review, and plan changes to address the challenges of inflation and currency devaluation.

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Should you have any further questions or would like to receive more detailed information on this topic, please reach out to us at info@venconresearch.com

Key HR indicators for the consulting industry

This collection of market statistics briefs highlights key consulting market statistics across five countries in the Eastern Europe region: Hungary, Slovakia, Poland, Czech Republic, and Romania. It offers insights into various key factors, such as the highest paying lines of businesses, market growth, starting salaries, career progression, and market pay level.

Notable highlights across Eastern Europe

• The year-on-year market headcount increase across these five countries ranged from 1% to 4%, with “Strategy-Oriented Management Consulting” and “IT Risk & Cyber Security Consulting” lines of businesses witnessing the largest growth.
• The average time required to progress from analyst level to partner level ranged from 25 to 30 years, with Poland and Hungary having the fastest track.
• “Strategy-Oriented Management Consulting” was one of the highest-paid lines of business and "Big Data and Analytics" also ranked among the top three highest paid in three of five countries.

The sheets also present median salaries for all Vencon Research career levels as percentages of basic salaries paid in the United States. Out of the five countries presented here, consultants in Czech Republic were paid the highest, ranging from 30% to 61%, while those in Hungary were paid the least, ranging from 23% to 42%.

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By Andy Klose - Associate Partner

Designing and defining partner compensation within consulting companies can be challenging, but the Trinity Model proposed here offers a clear solution.

By following this model, companies can confidently institute effective partner compensation to achieve the best outcome for all stakeholders. This model emphasizes the interconnectedness of profit, goals, and pay in shaping partner compensation, ensuring alignment with organizational objectives.

Understanding the Trinity Model

Vencon Research’s Trinity Model for Partner Compensation design is based on three fundamental pillars: profit, goals, and pay (Exhibit 1):

These elements are not discrete elements but are interwoven, shaping the trajectory of partner compensation within consulting firms.

1. Profit: Profitability, in its broadest sense, serves as the cornerstone of the Trinity Model. It encompasses various factors such as geographical location, business segment, industry dynamics, and operational models, delineating the profit potential of a company, service line, or consulting project.
2. Goals: Central to the Trinity Model are the objectives or Key Performance Indicators (KPIs) set for partners. These encompass tangible metrics like sales targets, revenue goals, contribution margins, and profitability thresholds, defining the expected outcomes from individual or team contributions.
3. Pay: The compensation offered to partners is the tangible expression of their contributions and achievements within the organization. While market competitiveness is essential, equitable compensation that aligns with individual contributions is equally crucial for fostering a culture of fairness and performance.

Harmonizing the Trinity

The Trinity Model demonstrates structural cohesion by linking profit, goals, and pay within defined frameworks such as partner levels or career groups. Unlike traditional career progression paradigms, partner levels in this model are based on competency and performance rather than a linear upward trajectory.

In practice, changing one element of the Trinity requires corresponding adjustments to maintain balance. For instance, modifying compensation without aligning goals can cause conflict within the system. Therefore, it is crucial to synchronize all three elements to avoid any potential issues.

The following example should highlight these interrelations: Consider a scenario where a consulting company is striving to achieve ambitious growth goals by increasing revenue. This can be implemented by setting higher revenue goals for the firm’s partners. Profitability is typically defined by the types of clients served or the type of advisory work offered and is often less flexible. In this example, it is a fixed element. So, increasing partners’ revenue goals without adjusting their pay (potential) will eventually lead to an imbalance. Partners can increase their income by achieving higher revenue or profit goals and making other contributions. However, for career levels below partner, pay may also be significantly influenced by inflation and other factors.

In essence, the example highlights the imperative of harmonizing profit, goals, and pay to maintain balance within the compensation structure. By aligning compensation with organizational objectives, companies can ensure that incentives are calibrated to drive desired outcomes, fostering a culture of accountability and performance at all levels of the organization.

Moving Beyond Benchmarking

Regular benchmarking of pay against relevant peers provides valuable market insights when reviewing pay practices and market positioning. However, some consulting companies, such as those with a more meritocratic pay approach (“pay for performance”) may need to add a second step to the benchmarking exercise, particularly when reviewing Partner pay in relation to performance metrics. Such companies may wish to consider additional factors beyond pay benchmarking to ensure coherence within the Trinity Model and achieve a more holistic alignment across all elements.

Incorporating ESG Considerations

In an era marked by heightened awareness of environmental, social, and governance issues, consulting companies should be encouraged to incorporate ESG considerations into Partner performance assessments and incentives. By doing so, companies can promote a culture that values responsible management, and strive for sustainable value creation over the long term. This holistic approach not only aligns with societal expectations but also enhances the company's reputation and competitive advantage in an increasingly ESG-conscious business environment. This expansion of the Trinity Model to include ESG elements will be covered in a follow-up piece to this article.

Balance & Interdependence for Success

Achieving balance in partner compensation is important for creating a culture of performance, fairness, and sustainability in consulting companies. By acknowledging the interdependence of profit, goals, and pay, and incorporating emerging ESG considerations, firms can implement partner compensation strategies with confidence and foresight.

We would be pleased to assist you with any additional inquiries you may have and offer recommendations on how to enhance partner compensation for your organisation.

Andy Klose is an Associate Partner at Vencon Research International and heads the firm’s consulting unit.

Vencon Research International is a leading provider of compensation benchmarking and research as well as of compensation and performance-related consulting services for professional service firms, especially for audit and tax, management consulting, and IT services firms. Vencon Research International provides services to a full range of clients in more than 75 countries worldwide and is proud to name more than 85% of the world’s major consulting and/or professional services firm its clients.

Accurate job matching is a critical step in salary benchmarking and setting pay ranges. It goes beyond simply comparing job titles; it involves a thorough examination of the tasks, responsibilities, skills and qualifications required for each role to ensure that the positions being compared are truly aligned. Without this precision, compensation structures can become inconsistent, leading to issues such as overpaying or underpaying employees, internal dissatisfaction, and difficulties in attracting and retaining top talent.

Why Accurate Job Matching Matters

Getting roles aligned when salary benchmarking is especially important in the consulting sector due to the complex and varied nature of consulting roles. Consultants often work across different client industries, each with unique demands, and their responsibilities may shift depending on the project, client, or region. This makes it critical to go beyond surface-level job titles and ensure a deep understanding of the specific tasks & responsibilities as well as experience and expertise required for each position. Accurately aligning the roles to be compared in a benchmarking exercise (i.e. job matching) also:

1. Ensures fair compensation: When roles are accurately matched, organizations can set salaries that reflect the actual work being done. This prevents disparities that could arise from comparing roles that aren’t equivalent in scope or responsibility.
2. Reduces pay inequities: Proper job matching helps maintain equity by ensuring that employees with particular responsibilities and skills are compensated at similar rates across markets. This fosters a sense of fairness and reduces the risk of pay-related grievances.
3. Enhances talent retention: Competitive and fair compensation is key to retaining top talent. When job matching is done accurately, organizations can better align their pay scales with the market, not just across broader levels, but also at more granular sub-levels. This ensures that existing incumbents are paid exactly what they deserve, while attracting the right candidates to the role.
4. Supports strategic decision-making: Accurate job matching provides reliable data that can be used to make informed decisions about salary adjustments, promotions, and workforce planning.

Key Principles for Accurate Job Matching

At Vencon Research, we don’t see job matching as an extra; it's at the heart of how we benchmark salaries. By prioritizing this process and working closely with our clients, we help ensure that compensation structures are fair, competitive, and aligned with the realities of the market. This level of detail is what sets us apart and helps our clients stay ahead in attracting and retaining talent. Key principle in our methodology are:

1. Focus on tasks & responsibilities, not titles: Job titles can be misleading, as the same title might encompass different responsibilities across companies. The focus should be on what the job actually entails—its core duties, the level of decision-making required, and the tasks, responsibilities and skills necessary to perform the role.
2. Consider experience and skills: Beyond responsibilities, the experience and skills needed for a role should be closely examined. This ensures that comparisons are made between roles that require similar levels of expertise.
3. Use a tiered approach: Grouping roles into tiers based on their level of responsibility and impact within the organization can help standardize the job matching process. This makes it easier to compare similar roles across different industries and companies.
4. Engage in collaborative analysis: Job matching shouldn’t be a one-sided process. Engaging multiple stakeholders—such as HR professionals, hiring managers, and industry experts—can provide a more comprehensive view of the role and ensure that all relevant factors are considered.
5. Keep market trends in mind: The job market is dynamic, and roles evolve over time. Regularly updating job matching criteria to reflect current trends in responsibilities and required skills is essential for maintaining accuracy.

Defining Career Progression and Levels

Our career progression structure reflects a transparent roadmap from entry-level Analysts to Partners. Matching participant firms’ own job levels to this structure serves as the foundation for accurate salary benchmarks. Mis-leveling a role can lead to significant discrepancies in pay so ensuring that roles are placed at the correct level is crucial. When incorporating a participant firm for our benchmarking surveys, we analyse the firm’s roles and find the appropriate match across 15 individual sublevels in order to structure in line with a standard 5 level / 15 sublevel output. Alternatively, we adjust to an output that reflects their own level matching. In both cases, we work closely with the firm to ensure the exercise is accurate and reflects the realities of the roles.

Task and Responsibility-Driven Matching

Vencon Research’s methodology focuses on task and responsibility-driven matching to ensure roles are assigned to the correct level. Unlike time-based metrics, this approach aligns job matching responsibilities, ensuring that tasks, responsibilities, skills and competencies directly correspond to the actual requirements of each role. This leads to a more accurate and nuanced understanding of an individual’s contribution.

Our criteria for each level are extensive, and build on a distinct understanding of differing tasks and responsibilities as a consultant progresses in their career from an Analyst via Principal (Consultant Salary Surveys) to a Primary Partner and further to a Senior Partner (Partner Salary Survey). At the entry level, Analysts focus on data gathering and analysis under supervision. As professionals advance to the Associate level, they engage more with clients and manage projects, requiring advanced analytical tools and leadership skills. Managers take on the first level of personal responsibility as well as full accountability for project deliverables and deepen their industry-specific expertise. Senior Managers oversee multiple assignments, guiding junior colleagues while managing profit and loss responsibilities. the final level within the Consultant Salary Surveys is the Principal level, those taken out of the “day to day” business and responsible for implementing the strategy decisions decided upon by the partners (Partner Survey).

A Commitment to Accuracy

Accurate job matching is more than just a technical exercise; it is the essential entry point to fair and effective compensation structures. When done right, it ensures that salaries align, first and foremost with actual job responsibilities, while also aligning with market standards, fostering a sense of fairness within the organization and beyond. This, in turn, helps retain top talent and positions the company as an attractive place to work.

For organizations, the benefits of accurate job matching are clear—ensuring competitive pay, maintaining internal equity, and supporting informed decision-making. By following principles such as focusing on tasks and responsibilities over titles, engaging in collaborative analysis with experts and keeping an eye on market trends, companies can create compensation structures that are not only fair but also competitive.

At Vencon Research, we place job matching at the heart of our benchmarking process because we believe that precision in this area sets the stage for everything else. By working closely with our clients and using a task and responsibility-driven approach, we help ensure that their compensation strategies are built on a solid foundation, enabling them to attract, retain, and motivate the talent they need to succeed.

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An Invaluable Tool for Compensation Management

Salary survey reports are invaluable tools for compensation management. By understanding key indicators and leveraging data-driven insights, businesses can develop competitive compensation strategies that attract, retain, and motivate top talent effectively.

Find out more about Vencon Research's Consultant Salary Survey here.

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As a trusted HR partner for the consulting industry, Vencon Research is here to help you unlock the full potential of your team. Contact us to learn more about how we can support your HR needs and drive success for your business.

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