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By Andy Klose - Associate Partner

In this series of articles, we would like to highlight an aspect of remuneration strategy that is often not given sufficient attention: The ratio of fixed and variable pay to total cash compensation (also known as "pay mix").

In today's fast-paced professional services landscape, the recruitment and retention of highly-skilled employees is paramount for success. However, not all companies can offer cash compensation packages that meet (or exceed) industry benchmarks, making the strategic design of pay structures increasingly important. This article explores the nuances of pay mix and its influence on a firm's capacity to both attract and retain top talent. Benchmarking percentiles are instrumental in guiding companies to align their compensation strategies with market realities. Through practical examples, we reveal how even minor alterations to remuneration structure can impact a company's competitiveness in the labour market.

In Part 1 of this series, we explained why the pay mix can be the defining differentiator, particularly from an employee’s perspective, when many of the other key elements of compensation across competing organisations are considered to be broadly similar. In Part 2 we discussed how pay mix affects the financials of firms, especially with regards to personnel costs. This Part 3 examines how pay mix should be adjusted in relation to the total cash compensation offered and how benchmarked market percentiles are the most effective indicator of competitive positioning. And, in the final Part 4 we will assess how pay mix may influence firms’ culture and performance.

Introduction

As people are the key asset for professional services firms in particular, hiring the right people, motivating them to perform at their best and retaining top talent are critical to success.

Companies have different operational models, service different market segments or clients resulting in different economic realities. As a consequence, not all companies will be able to offer total cash compensation packages which are “in line” with the market (i.e. around the market’s median) or above to attract the best talent in the market.

Therefore, particularly for companies forced to offer total cash compensation below the market’s median it is crucial to get the pay-mix right. Understanding and utilizing percentiles in the benchmarking process can provide valuable insights into compensation competitiveness.

Total cash compensation in relation to fixed and variable pay

The following example (Exhibit 1) illustrates this: Assuming the following five offers relate to comparable positions with comparable future prospects and development opportunities, etc., offered by three comparable companies with similar brand, status, market and growth prospects, etc.:

In the example above, both Firm 1 and Firm 4 offer the lowest total cash compensation (90). On the contrary, Firm 3 and Firm 5 offer the highest total cash compensation (100). Firm 2’s offer (95) is in between the other four offers.

The key difference though lies in the pay mix, particularly when comparing offers amounting to the same total cash compensation:

When comparing Firm 1 and Firm 4: Both firms offer the same total cash compensation (90), but Firm 1 offers a higher base salary (70) and a lower variable pay (20) than Firm 4, which offers a lower base salary (60) and a higher variable pay (30). When comparing these two offers, obviously Firm 1’s offer is more attractive, because less money is “at risk”.

The second comparison refers to Firm 3 and Firm 5. Both firms offer the same total cash compensation (100), but Firm 3 offers a lower base salary (60) and a higher variable pay (40) than Firm 5, which offers a higher base salary (70) and a lower variable pay (20). When comparing these two offers, obviously Firm 5’s offer is more attractive, because less money is “at risk”.

But generally, Firm 4s offer is the least attractive from all five offers, since it offers the lowest total cash compensation (90) and the lowest base salary (60). Assuming full transparency in the market, Firm 4 would be having the most problems in attracting talent.

In contrast, Firm 5s offer is the most attractive from all five offers, since it offers the highest total cash compensation (100) and the highest base salary (70). On the other hand, one could argue whether Firm 5 is overpaying by offering both, the highest total cash compensation and a very comfortable pay mix (with relatively little money “at risk”).

Pay mix as a means of offering competitive compensation

In the next example (Exhibit 2) we will focus on the first three offers of Firms 1 to 3, which are more in line what one would consider a rational approach for adjusting pay mix according to the size of total cash compensation offered:

We already highlighted the inverse correlation between size of total cash compensation and ratio of fixed to variable compensation components (aka pay mix): Simplified one can say, the higher total cash compensation, the higher is also the variable pay in relation to base salary and total cash compensation (or in other words: the “riskier” is the pay mix).

Pay mix and market percentiles of different pay elements

Assuming that these offers match the market’s pay range as follows: Firm 1’s total cash compensation (90) matches the lower quartile (25th percentile) of the market’s range, Firm 2’s offer (95) matches the median (50th percentile), and Firm 3’s offer (100) matches the upper quartile (75th percentile).

Considering the market positioning with regards to total cash compensation, ideally the positioning with regards to base salary should be the other way around: Firm 1 should target a higher market percentile (e.g. the 75th percentile) for base salary, Firm 2 could be targeting the median (50th percentile), and Firm 3 could offer a slightly more “aggressive” pay mix by targeting a lower percentile (e.g. the 25th percentile) for base salary.

From our experience in benchmarking hundreds of consulting and professional services firms we see, that these relationships and ratios are often overlooked when designing compensation models.

In summary, not all firms can offer market-competitive total cash compensation packages, making it critical to optimise their pay mix. We illustrated how companies with similar total cash compensation packages can differ in their attractiveness to candidates due to differences in their pay mix. Companies with a higher base salary and lower variable pay may be more attractive because they involve less financial risk for employees. The pay mix should be adjusted in relation to the total cash compensation offered, with higher compensation typically having a larger variable component (and vice versa). Ideally, companies should aim to align base pay with market percentiles to effectively attract and retain top talent.

We are at your disposal for further questions and suggestions regarding how you optimally design the pay mix (and/or remuneration systems) for your company.

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.

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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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By Yao Tang – Business Development

In the world of consulting, staying competitive means possessing the necessary skills to offer innovative and effective solutions to clients’ problems. These competencies, often referred to as “hot skills”, are continually evolving, with new skills consistently taking centre stage.

Hot skills can vary over time as technology and industry trends change, but they typically represent expertise in areas that are currently experiencing rapid growth, innovation, or a shortage of qualified professionals. Current examples include machine learning, cloud computing, blockchain, cybersecurity, and specific programming languages such as Python, Ruby, JavaScript and others. Hot skills can also extend beyond technical skills and include skills related to management consulting, strategy development, industry-specific knowledge, and more - depending on the specific focus of the consulting firm and the needs of their client base.

Consulting firms seek professionals with these skills because they are essential for delivering services to clients looking to adopt or optimize new technologies or approaches in their business operations.

Hot skill-based compensation

In order to attract and retain professionals with these in-demand skills, consulting firms often find they need to adjust their compensation and talent acquisition strategies. Doing so, they are seeking to address a number of issues:

1. Skill Shortages: Paying a premium for hot skills attracts professionals possessing these skills, combating skill shortages in particular areas.
2. Competition for Talent: Offering competitive compensation for hot skills sets the firm apart in the competitive talent market, making it more appealing to top candidates.
3. Client Demands: Hot skills enable consultants to meet clients' evolving needs efficiently and with expertise, enhancing client satisfaction and trust.
4. Retention and Motivation: Paying a premium motivates employees to acquire and maintain hot skills, reducing turnover and preserving institutional knowledge.
5. Market Rate Alignment: Aligning salaries with market rates ensures the firm can secure and retain skilled professionals, staying competitive in talent acquisition.
6. Efficiency and Effectiveness: Hot skills lead to more efficient project execution and higher-quality outcomes, enhancing the firm's effectiveness in delivering value to clients.
7. Strategic Business Goals: Investing in hot skills aligns the firm's workforce with its strategic objectives, enabling it to tackle specialized projects effectively.
8. Talent Pipeline: Attracting individuals with hot skills helps build a talent pipeline of skilled professionals ready to contribute to ongoing and future projects.
9. Client Trust: Demonstrating expertise in hot skills instils confidence in clients, fostering trust and long-term relationships based on the firm's ability to deliver on their needs.

While an increase in compensation is the obvious way to attract and retain candidates with particular hot skills, exactly how such adjustments are introduced and managed may vary from one firm to another.

Our market analysis reveals three main approaches to hot skill compensation among consulting and IT firms:

Group 1:

Firms offering broad salary bands that encompass higher pay for a particular hot skill.

This is the largest group among the firms we looked at or spoke to in our analysis. The adjustment is reflected in a wider, albeit existing, salary range for the position in question.

As such the adjusted hot skill-based salary does not necessitate a change in the salary ranges being offered by the firm because the hot skill premium is within the existing salary range; it only increases the average salaries being paid.

Interestingly, the majority of this group of firms offered their hot skills-based employees a fixed increase in salary. Should the skill go from hot to “vanilla”, i.e. no longer cutting edge or exceptional, or if the employee were not working on a project requiring this hot skill, their salary was not adjusted (i.e. downwards).

Group 2:

Firms paying or adjusting salaries only for the hot skill in question.

In this model, only employees with the respective hot skill are offered a higher salary – outside of the firm’s existing salary range.

Again, the majority of this group of firms offered their hot skills-based employees a fixed increase in salary. Should the skill go from hot to “vanilla”, or if the employee were not working on a project requiring this hot skill, their salary was not adjusted (i.e. downwards).

Group 3:

Firms that pay a hot skills bonus or additional component.

This group offers an additional bonus or salary component to employees who can demonstrate that they possess a desired skill (e.g. via a certificate or diploma or otherwise). This additional income functions in a similar way to a bonus and can be discounted should the hot skill become “vanilla”, or as in the case of some firms, when the employee is not working a case or project that requires the hot skill in question.

The cooling effect

As our clients have frequently noted, the hot skill of today may become vanilla tomorrow. This is why the strategy of Group 3 is often the most efficient from a firm perspective. It is clear that HR managers at consulting firms may not be able to hire the talent they require without offering the premium required by the market. However, with this approach the skill is paid for only when it is in use.

It is up to firms to decide which approach is best suited to their business and perform a balanced assessment of the effects of each approach on their goals, considering firm competitiveness, profitability, talent acquisition and retention.

In our forthcoming article, we will further explore the intriguing relationship between hot skills and their influence on consultant compensation, delving into the finer details of how these hot skills are factored into our benchmarking assessments here at Vencon Research.

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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By Philip Thomas - Advisory

The answer could very well depend on who you ask.

With a number of major and mid-size consulting firms recently electing to evolve from traditional partnerships into corporations, debates on the pros and cons of such a move abound. The switch to corporate structure is seen as controversial, if not ill-advised, by many, yet touted as a path to significant growth and shared success by others.

Firms which continue to employ the partnership model will undoubtedly have keen eyes on how firms undertaking the transition develop, while some may even be persuaded into rethinking their own structures.

Below, we take a look at some of the major pros and cons for consulting firms considering the switch to corporation from a traditional partnership.

What are the potential benefits of changing from a traditional partnership to a corporation?

A change to a corporation could stand to benefit a firm, existing partners, entire workforces and future employees in a variety of ways including:

For the firm:

• Tax advantages.
• Possibility of additional capital for investments in growth and other investments, e.g. in Know-How.
• Additional financial flexibility.
• Efficient governance, e.g. allowing leaders to make difficult proactive decisions that otherwise may previously have been held off by the partner collective.
• Attractive means of enticing elite talent to join.
• A chance to realign retirement funding.

For the existing partners:

• Cashing in now, i.e. by selling portions of shares (especially advantageous for the more senior partners).
• Retaining influence.
• Reduction in legal requirements and administration.
• Preservation of limited legal liability.

For the entire workforce including future employees:

• Everyone has the chance to benefit from the firm’s success.
• The best talent will be in a position to benefit early.
• Working together under a ‘one company’ philosophy.

What are the potential drawbacks of changing from a traditional partnership to a corporation?

The prospect of changing from a traditional partnership to a corporation introduces of number of potential drawbacks, including:

• The risks of changing an already advantageous situation. Proven performance, continued growth and the longevity of the traditional partnerships should not be undervalued.
• Losing one of the key drivers of success, that being the enviable partner pay that results from equity-owned or profit-sharing.
• Adding new complexities and fear into the mix. Significant change itself is understandably daunting and often goes hand in hand with doubt and infighting. Not all people and groups deal with change well.
• Dropping a culture and mindset that may be desired by the current workforce. Many of those at the traditional partnerships chose to be there with reasonable knowledge of the existing structure. They may well not wish to work under an alternative structure.
• If the firm goes public, there will be a subsequent increase in administration.

There are also legitimate concerns around the opportunities for additional capital

Additional borrowing or private equity investment are not strictly speaking necessary in order to change to a corporation, however more often than not the opportunity to do so is a driving factor in the move. While the benefits of extra capital are easily deduced, the process can also bring detrimental effects. The concerns here are as follows:

For the taking on of debt:

• Taking on debt is, by its nature, almost always a controversial and divisive topic that may lead to fierce debate among stakeholders.
• Owed money must be paid by the firm (and therefore effectively by employees) at some point.
• Perceptions that existing partners, especially the most senior, are set to cash while other staff are left out.
• May create some level of suspicion and distrust within the firm.
• The firm’s next leadership teams could well feel hard done by leading to high attrition.

For a private equity investment:

• Relinquishing full control of the firm’s strategic direction.
• A period of difficult transition that may lead to dissatisfaction among employees.
• Uncertainty over whether the investors are the right group for the firm in the long-term.
• Financial implications of the new model for the existing workforce.

Time will tell

The change to a corporation could be the catalyst that some firms need in order to step-up and begin to significantly disrupt the status quo in their respective markets. The move is forward thinking, proactive rather than reactive, and bold. It could also find itself aligning neatly with the motivations, ethics and culture of the new generations of workforce.

However, there are clearly legitimate concerns and potential drawbacks that need to be appreciated and taken into consideration. These worries are only heightened when the burden of significant debt is part of the package.

With the pioneers of this transition still at the beginning of their new journey, a final verdict on the overall benefits of a change from a traditional partnership to a corporation will take time to reach. In the meantime, competitors will be keenly watching to see whether recent examples light the way or serve as a warning.

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.

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By Andy Klose - Associate Partner

In this series of articles, we are highlighting an aspect of remuneration strategy that is often not given sufficient attention: The ratio of fixed and variable pay to total cash compensation (also known as "pay mix").

In Part 1 of this series, we explained why the pay mix can be the defining differentiator, particularly from the perspective of attracting and retaining employees.

In this Part 2 we will discuss how pay mix affects the financials of firms, especially with regards to personnel costs. In the upcoming Part 3 we will examines how pay mix should be adjusted in relation to the total cash compensation offered and how benchmarked market percentiles are the most effective indicator of competitive positioning. And, in the final Part 4 we will assess how pay mix may influence firms’ culture and performance, we will examine how pay mix may influence firms’ culture and performance.

Part 2: Bottom line up front:

The higher the total cash compensation, the higher the variable pay as a proportion of total cash compensation (or in other words, the pay mix is "riskier" because a larger proportion of pay is performance related). In companies with a well-designed performance appraisal system, underperformers may "finance" the additional variable pay needed to reward overperformers. But the cost effect is only one consideration: companies will achieve significantly better overall results if more employees over-achieve their targets, which will also have a positive impact on the bottom line.

Introduction

For professional services firms in particular, hiring the right people, motivating them to perform at their best and retaining top talent are critical to success.

In an ideal world, the solution would be very simple: companies pay their employees the highest salary relative to all other “competitors for talent” (which could be market participants within the same industry, but also in other sectors) in the hope of attracting and retaining the best performing employees in the market.

In the real world, however, the interests of stakeholders other than employees, such as the owners of the company, stand in the way: owners are interested in sustainable profits and above-average growth rates, and are therefore generally only prepared to pay above-average salaries to employees if they also perform exceptionally well.

Pay mix as a means of offering higher total cash compensation

For this reason, higher pay - in certain jobs - is usually strongly or directly linked to the achievement of results and performance. In professional services firms, especially for client-facing or sales staff, this is often achieved through variable pay components such as bonuses.

Generally, there is an inverse relationship between the amount of total cash compensation and the ratio of fixed to variable and total cash compensation (hence, the pay mix): The higher the total cash compensation, the higher the variable pay relative to base salary and total cash compensation (or in other words, the “riskier” the pay mix).

The following example (Table 1 and Exhibit 1) illustrates this: Assume that the following three offers relate to comparable positions with comparable future prospects and development opportunities, etc., offered by three comparable companies with similar brand, status, market and growth prospects, etc.:

In the example above, Firm 1 offers the highest total cash compensation (100) with the lowest base salary (60) and the highest ratios of variable pay to base salary (67%) and variable pay to total cash compensation (40%). On the contrary, Firm 3 offers the lowest total cash compensation (90) with highest base salary (70) and the lowest ratios of variable pay to base salary (29%) and variable pay to total cash compensation (22%). Firm 2’s offer is in between the other two offers. In essence, the higher the total cash compensation offered, the more money is “at risk” (due to performance-related variable pay).

Performance appraisal and pay mix

Now, we will take a closer look at how pay mix also affects the financials of companies, especially with regards to personnel costs. The following example (Table 2) uses the same three offers as above:

As illustrated in the example above, when analysing variable pay (which in most cases is “pay for performance”), it is also important to address the issue of performance appraisal. In our practice, we often see that companies are more inclined to use a more sophisticated system to assess individual performance when variable pay is more relevant, i.e. higher in relation to base salary and/or total cash compensation. On the other hand, companies tend to spend less time assessing individual performance when variable pay is relatively low (or some companies do not offer variable pay based on individual performance at all, but rather, for example, a bonus based on company results or performance).

The amount of effort put into individual performance appraisals has an impact on the outcomes for both the employee and the organisation: A more detailed performance appraisal may also lead to more diverse performance outcomes, i.e. performance outcomes may look rather “bell-curve” shaped, i.e. some high performers, many on target performers and some low performers. Less sophisticated performance appraisal systems on the other hand will often lead to more heterogeneous performance results (i.e. a narrower but steeper bell-curve with fewer high and low performers). And, in companies where individual performance is not assessed, there will be no differentiation at all. Accordingly, the expectation is that all employees will have the same level of variable pay (or bonus).

In the example above, assuming that all employees perform at 100% of their targets, Firm 1 is expected to have the highest total personnel costs, Firm 3 the lowest and Firm 2 in between. On the other hand, the more sophisticated the performance appraisal, the greater the potential to differentiate between employees and thus “optimise” personnel costs, while still paying good and exceptional performers according to their contribution.

More diverse distribution of performers in performance appraisal

On the other hand, from the company’s point of view, a more differentiated assessment of individual performance usually results in a potentially wider range of variable pay costs, i.e. if more employees over-achieve their targets, the company will have to pay out more variable pay. Conversely, if more employees do not achieve their targets or under-achieve, the company will have to pay out less variable pay. Compared to the example above where all employees meet their targets, there may be a “cost optimisation” effect, i.e. part of the variable pay may be “saved” as a result of some employees’ underperformance, which can be paid (in part) to the overperformers. Based on the same three offers from the previous example, the following example (Table 3) examines three scenarios in which the distribution of achievers is changed:

In the example above, Firm 1 uses a more detailed performance appraisal, which is likely to result in more diverse performance outcomes: more high performers, less on target performers and more underperformers compared to Firm 2. In the case of Firm 3, where individual performance is not assessed, there will be no differentiation at all.

Obviously, Firm 1 has the highest variance in its total cost of variable pay (from 360 to 440 in the three scenarios). Company 2's variance in terms of total variable pay costs is lower than Firm 1's (from 270 to 330) and Firm 3 will not see any change in its budget if the performance of individuals changes. This also means that Firm 1 and Firm 2 can “save” up to 10% of their variable pay budget if more people underperform (which is by no means a target, but if it happens, it also saves money).

Personal performance and pay mix affect personnel costs

Since base salary is a “fixed” component of personnel cost, variable pay is the only component which may fluctuate according to distribution of performers, and thus, so will the total personnel cost (Table 4):

In this example, Firm 1’s total budget for personnel costs will vary the most (between 960 and 1,040), Firm 2’s will vary a little less (between 920 and 980) and Firm 3’s will not vary at all.

The cost effect is only one aspect: Firm 1 will achieve significantly better results in the first scenario if more employees over-achieve their targets, which will also have a positive effect on the company’s results, growth and so on.

Conversely, Firm 3 has no impact on its personnel costs, regardless of whether or not its employees perform. On the other hand, Firms 1 and 2 may save some personnel costs when employees do not perform.

Finally, all the above concepts are less relevant (or even counterproductive) for “creative” jobs or for jobs where meaningful and measurable metrics cannot be defined (such as some administrative jobs).

In summary, the pay mix can also have significant implications for both the employee (in terms of “money at risk”) and the company (e.g. higher personnel costs if more employees overperform and vice versa). In companies where there are clear performance appraisal systems in place, underperformers may “finance” the additional variable pay needed to reward overperformers. But the cost effect is only one consideration: Companies will achieve significantly better overall results if more employees over-achieve their targets, which will also have a positive impact on the bottom line. On the other hand, no differentiation at all in terms of personal performance can have a negative impact on the “motivation” of high performers (which will be discussed in more detail in Part 3).

We are at your disposal for further questions and suggestions regarding how you optimally design the pay mix (and/or remuneration systems) for your company.

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.

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By Gonzalo Lavín Alfaro - Business Development

Evaluating the "new normal"

Factors such as the COVID-19 pandemic, technological advancements, and evolving work dynamics have ushered in a new era of flexibility, leading to a rapid surge in remote work. This paradigm shift has not only redefined our work practices but has also presented several advantages for both employees and employers. However, it is crucial to retain a reserved approach to evaluating remote work while identifying the trends that have emerged since its widespread adoption and implications for human resources managers worldwide.

What was once considered unimaginable a few years ago is now commonly referred to as the "new normal", especially in sectors where office work predominates. And by now, we are all familiar with the benefits commonly associated with remote work, including:

1. Enhanced employee well-being: Reduced commute times translate into decreased stress levels, improved mental well-being, and lower transportation costs.

2. Optimal utilization of office space: Remote work diminishes the need for extensive office space, leading to cost savings for organizations.

3. Promoting sustainability: With no commuting involved, there is a reduction in vehicle usage and subsequent pollution.

Challenges and debates around remote work

Despite the well-publicized advantages, remote work also poses certain challenges. Potential drawbacks include isolation and reduced social interaction, which can impact mental health. Moreover, while arguments extolling the productivity gains of remote work abound, there are also serious voices that claim the exact opposite. While these are often dismissed as reactionary management positions, they deserve equal consideration.

The rise of remote work has also given rise to other challenges, particularly in relation to location flexibility. Some individuals now work remotely from different cities, regions, or even countries. In such cases, questions arise regarding fair compensation for those residing in lower-cost areas, as well as concerns related to insurance and taxation.

An evolving landscape: keeping abreast of developments is crucial

Over time, work-from-home policies have undergone further evolution. During and directly after the pandemic, the proportion of companies offering full-time remote work exceeded 90% in applicable sectors. However, more recently, some companies have begun reverting to traditional in-office work to address the aforementioned issues. According to Vencon Research surveys, it is common to see consulting companies offering employees 1 to 3 days of remote work, representing the majority of responses. While some firms in certain industries like IT and technology continue to offer 100% remote work, the overall trend has shifted towards a hybrid work model.

As firms worldwide continue to consider the efficiency and balance offered by different work models, remote work will remain an evolving and important aspect of human resources management. To further discuss our findings on trends in your industry or to seek our assistance in benchmarking your remote work policies, please don't hesitate to get in touch.

venconresearch.com/contact

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