Latest InSights

By Makar Evdokimov - Data Integrity Senior Associate

At Vencon Research, we pride ourselves on being the leading specialist provider of compensation and pay metrics to the global professional services, management, and IT consulting industries.

In this article we take a closer look at the statistical measures used in our compensation reports to represent remuneration levels in the market. Taken together these ensure accuracy and relevance for a variety of benchmarking purposes.

Mean: a common starting point with considerable limitations

Looking at the average (mean) salary might be the most intuitive way to get an idea about the overall situation in the market. Statistically speaking, the arithmetic mean is an unbiased estimator of expected value, so from a theoretical perspective, it is a meaningful way to describe the distribution of values with a single number. However, in practice, the average may be somewhat misleading, especially when dealing with remuneration.

Even if we compare employees that have very similar scope of responsibilities and hold positions in firms which are direct competitors, the financial compensation may vary drastically from one case to another. Quite often, such a population will include a few individuals whose remuneration is substantially higher than that of the rest of the group. Such incumbents would be the outliers that drive the average value for the population upwards. The average considers all remuneration values in the population, but it may still be considerably higher than the financial compensation of most of the employees. This undermines the ability of the mean to represent the level of remuneration in the market. Therefore, it is common practice to use other, more robust indicators to aggregate remuneration data in a meaningful way.

Median and percentiles: analysing data distribution

The median is the most common measure used when evaluating remuneration levels in a market. While the mean requires an arithmetic operation involving all values in the sample, the median is rather defined by how the values in the sample are distributed across its range. The median value of remuneration in a population is basically such a value that half of the population is paid lower than the median and the other half is paid higher.

The median provides meaningful insight into the distribution of the values and it is more robust to outliers than the mean. This makes it one of the most important measures utilized in our surveys. Nonetheless, a single value can only say so much about a large dataset, so to provide an extensive overview of the market distribution of various remuneration components, the entire percentile range alongside the median (50th percentile) is presented in our surveys. This is especially helpful if your firm is interested in paying employees above or below the market, which means that the target market percentile (TMP) is not the median but a different point within the range. Vencon Research surveys provide all the data and tools necessary for benchmarking against any target - allowing you to select market target percentiles ranging from the lowest 5th to the highest 95th.

Our surveys also display distribution in the form of boxplot visualizations, charts that focus on five data points in the population: minimum, 25th percentile, median, 75th percentile, maximum.

Such visual aid gives a quick understanding of how the distribution is shaped which can become a valuable insight about the market.

Midpoint: a range-focused indicator

The midpoint (also known as the mid-range) is an arithmetic mean of the maximum and the minimum values in the population.

Even though it seems to be a poor measure of the remuneration level in the market, since it is very much not robust to outliers, the midpoint value is a range-focused indicator that can tell you how much the values of remuneration are dispersed in the market.

Compa-ratio: a key benchmark for salary comparison

One of the most useful metrics utilized in compensation benchmarking is the compa-ratio. The compa-ratio is calculated as your firm’s pay level divided by the market pay level. The selected measure of pay level can vary: mean, midpoint, median, or any other percentile can be used. Nonetheless, it is most common to calculate compa-ratio based on medians. In this case, a compa-ratio value of 0.85 or 85% indicates that the level of remuneration at your firm is 15% below the market level, while a compa-ratio of 1.1 would mean that your employees are paid 10% more than in the market. The comparative ratio assesses how competitive the remuneration at your firm is and gives a specific quantitative estimate of how far your current pay level is from your target in relative terms.

Our reports include the compa-ratio in interactive tool format, allowing you to select the target market percentile with which to compare your firm’s compensation. This allows you to quickly interpret the difference between your firm and the market pay rate at any level or sub-level, across while targeting any point on the entire percentile range.

Actionable statistics for accurate and goal-oriented benchmarking

In our comprehensive compensation benchmarking surveys, Vencon Research utilizes these statistical measures to deliver precise and insightful analyses. By comparing your firm’s pay levels with market data, you can determine how competitive your compensation packages are. At Vencon Research, we are dedicated to providing our clients with the tools and insights needed to make informed decisions about employee compensation. Our meticulous approach ensures that you have the most accurate and actionable data at your fingertips, helping you maintain a competitive edge in the market.

To find out more about our surveys and our benchmarking methodology do not hesitate to get in touch. Our team is always ready to provide personalized assistance to meet your specific needs.

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By Veronika von Strachwitz-Camara - Business Development

In compensation management, a thorough understanding of market trends is essential for businesses aiming to attract and retain talent. This understanding is often gained from salary survey reports, which provide the crucial data points for crafting competitive compensation strategies.

Here, we explore the key indicators highlighted in Vencon Research salary surveys and how they inform decision-making across talent management scenarios.

Client Priorities: Focusing on Essentials

Clients consistently emphasize the usefulness of several key indicators from our salary survey report that help them get the insights they need to focus their compensation strategies.

Total Cash Compensation (TCC) Medians per Career Level:

This metric offers a comprehensive view of compensation, including base salaries and bonuses, serving as a fundamental benchmark.

Alongside Basic Salary and Bonus, Total Cash Compensation is presented in a separate tab, both for the current and previous year as well as in firm and incumbent weighted (link) forms. It is also viewable in the accompanying PDF presentation, as well as via the dashboard.

TCC offers the quickest overview of compensation in the market, while our percentile breakdown indicates the prevalence and level of variance from the median.

Basic Salary Medians per Career Level:

This view provides insights into salary structures across different career levels. Basic salary as a metric is essential for understanding baseline compensation.

Our reports present all data broken down into 5 career levels with 3 sub-levels each. These levels are carefully matched against participants own career structures to ensure like-for-like comparison.

Bonus Medians per Career Level:

Bonuses are integral to compensation packages, and understanding bonus medians helps assess reward structures and performance-based incentives. Bonuses are presented both in monetary value as well as in percentage of basic salary form.

Once again, we present not just the median but the full percentile scale, and allow for comparison with your own firm’s basic salary.

While the median serves as a reliable reference point for many firms, ambitious enterprises may explore higher percentiles for competitive insights.

Firm-weighted Salaries:

For smaller firms, firm-weighted salaries ensure balanced analyses reflective of diverse organizational landscapes.

The choice between firm-weighted and incumbent-weighted data depends on organizational size and preference. We recommend watching our three-minute video on the topic for a concise introduction to the difference in each approach.

Utilization of Data: Practical Applications

Beyond mere observation, clients utilize the data in our reports in various ways:

• Market Positioning Assessment: Well organised compensation data allows organizations to understand their competitive stance within the industry, including employee reactions to compensation changes, turnover trends, and job satisfaction levels.
• Global Teams Harmonizing Salary Ranges: Multinational corporations leverage survey data to align compensation frameworks across regions, empowering local HR teams to refine offerings.
• Strategic Recruitment: Key indicators inform the crafting of compelling compensation packages to attract both junior and senior talent, ensuring competitiveness in the talent market.
• Retention Strategies: By benchmarking against industry standards, organizations identify retention risks and implement targeted interventions to foster loyalty.
• Bonus Allocation: Insights from bonus medians and payout ratios guide organizations in strategically distributing bonuses based on performance and market benchmarks.

Tailoring Indicators to Needs

Different talent management scenarios require emphasis on specific indicators:

Recruiting Junior Levels:

Basic salary medians and bonus structures provide insights into entry-level compensation and growth potential.

Recruiting Senior Levels:

TCC medians and bonus potential are crucial for senior candidates assessing overall value propositions.

Retention Strategies:

Comparative analyses of salary increases aid in identifying retention risks and devising targeted retention strategies for each career level.

Bonus Allocation:

Analysis of bonus medians and payout ratios ensures fair and strategic bonus allocation aligned with performance metrics.

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.

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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In the consulting industry, compensation isn't just about salaries— it's a strategic tool for attracting top talent, managing finances, staying competitive, and ensuring fairness. At the heart of this strategy lies salary benchmarking, a practice that aligns compensation with industry norms.

In this briefing, we'll explore the twelve crucial factors that drive success, ensuring consulting firms can attract top talent, manage costs effectively, stay competitive, and maintain fairness within their organizations. These factors are thoughtfully grouped into four relevant categories, providing a comprehensive framework for compensation strategies tailored to the needs of the consulting industry and its professionals.

Talent Acquisition and Retention

Talent acquisition and retention are critical for consulting firms to maintain their competitive edge and deliver high-quality services to clients. Ensuring that consultants are adequately compensated and incentivized is key to attracting and retaining top talent.

Cost Consideration and Financial Management

Managing costs effectively is vital for consulting firms to maintain profitability and sustainable growth. Salary benchmarking helps firms optimize their financial resources while ensuring competitive compensation for employees.

Market Dynamics and Strategic Planning

Understanding market dynamics and aligning with industry standards are essential for consulting firms to adapt to changing market conditions and drive strategic decision-making.

Compliance and Fairness

Ensuring compliance with labour laws and maintaining fairness in compensation practices are fundamental for fostering a positive work environment and minimizing legal risks.

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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By Cara Solorzano - Business Development

Stay on pulse with HR trends in the consulting industry as our advisors share the latest insights and strategies gleaned from engagements with firms worldwide.

1. Budget considerations

Many consulting firms are being cautious with their company spending and HR budgets are not immune to imposed constraints. Such budget considerations seem to affect small to mid-size consulting firms more than larger and global players.

2. Both consulting firms and their clients err on the side of caution

Consulting firms are cautious due to a general sense of insecurity surrounding market stability, compounded by clients hesitant to embark on consulting projects, often delaying confirmation and constraining project size and scope in the name of “cost saving”.

3. Q1 offers promising talent in 2024

HR leaders tell us 2024 is offering up a rich pool of consulting talent in Q1. Hirers are excited about having options, something denied them for the past few years as outstanding talent seemed rare to find.

4. Candidate green demands

New hires are very focused on company sustainability and are questioning not only which “green” Employee Benefits a firm may offer, but also the company’s eco-friendly operating policies.

5. Office presence, on occasion

Many firms have cut their physical offices (one client cut 70% of physical locations) and are developing new strategies to maintain team spirit and social interaction. One has endeavored to build “chit chat” culture into video comms: “setting up calls can be daunting, so we are starting to call employees outside of fixed meeting times to simply say hello and have a cup of coffee, like we would in the office”. Another firm that sees a majority of work done remotely has recognized that many younger employees are still keen to come into the office due to their living situations (shared flats or smaller apartments), or simply the desire for more “in-person” connection, and has set up a system allowing consultants to book the times they intend to spend in the office, where space may otherwise be limited.

6. No office, no oversight?

Many consulting firms are concerned about employee output, especially in the context of increased remote work. One client informed us that managers have created a due diligence system to account for employees’ timelines. If an employee is falling behind their quotas they set up one-on-ones and set appointments to review both prioritization and strategy on accomplishing both goals and tasks.

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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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.

Compensation and Pay Mix: Part 4

By Andy Klose - Associate Partner

In this series of articles, we highlight an aspect of remuneration strategy that is often overlooked: the ratio of fixed and variable pay to total cash compensation (also known as "pay mix").

Pay mix determines what types of employees are attracted by a particular compensation model, which in turn impacts a company's performance and results. Setting the right pay mix, especially for client-facing and sales roles in professional services firms is critical for success.

As a rule of thumb: The higher the influence of a job holder on clients’ purchasing decisions, the higher the variable portion in the pay mix. Lastly, the type of employees being attracted to a particular compensation model will also shape a firm’s culture in the long run.

Pay Mix: A Defining Differentiator in Compensation

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. Part 3 examined 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 this final Part 4 we will assess how pay mix may influence firms’ culture and performance.

This is the last part (Part 4) of our series on compensation strategy, where we focus on the critical importance of pay mix - the balance between fixed and variable compensation - in shaping employee attraction, firm culture, and long-term performance. In this article, we provide deeper insights into how pay mix influences organizational culture and overall performance.

Challenging Conventional Wisdom

In the midst of debates over the effectiveness of increased remuneration in motivating employees, it is crucial to challenge conventional wisdom. While monetary incentives undoubtedly play a role, our research suggests that sustainable performance depends more on creating a high-performance environment than simply increasing pay.

We propose a paradigm shift captured in our “Performance Mindset Framework” (Exhibit 1), which highlights the link between mindset, behaviour, and performance. Our model suggests hiring individuals who are motivated by intrinsic factors, such as a sense of ownership and commitment, rather than relying solely on external rewards.

Attracting and Retaining Top Talent

To attract and retain high-potential candidates, firms must adopt rigorous recruitment processes and leverage advanced personality assessments to identify individuals with the right mindset and soft skills. Additionally, offering well-balanced total rewards packages, including compensation, benefits, and personal development opportunities, enhances the value proposition for prospective employees.

Strategic Pay Mix in Professional Services Firms

In industries like consulting and IT services, where achieving “hard KPIs” such as, e.g., sales targets and margin goals is paramount, offering a competitive pay package is imperative. Consulting companies not in the top quartile of their niche can leverage a slightly higher total cash package with a “riskier” pay mix to attract individuals motivated by performance-driven incentives.

Expected Long-term Effects of Compensation Strategies

Based on the following example, we present the expected long-term effects assuming that the compensation strategy and pay mix are implemented consistently over several years. In simplified terms, the expected results are shown in Exhibit 2:

Firm 1 will attract more 'hunter'-type employees who are drawn to the compensation model, which includes a relatively high variable, performance-related portion with the potential for the highest total cash. This will result in a competitive and dynamic corporate culture. The main challenge for the company will be fostering cooperation between employees rather than motivating them.

Firm 3 is the ideal choice for employees who value a higher fixed base income over a higher total remuneration. Individuals who are less performance-driven or less self-assured may find this option more attractive compared to Firm 1. This situation may result in performance issues for the company in the long term. There is the danger that employees who consistently outperform their colleagues will leave due to the relatively low variable bonus component, which prevents them from expecting a significantly higher salary than their peers. Additionally, these employees may be enticed to work for one of the other two rival types of companies, where they can earn significantly more for the same level of performance.

In the long term, Firm 2 will see long-term results between the two scenarios outlined. Identifying 'over-performers' and motivating them may be a key challenge, but one that can be overcome with the right approach.

Long-Term Implications

Different pay mixes yield distinct long-term effects on a company's economic situation and culture. Companies with a higher variable portion in their pay mix tend to attract dynamic, performance-oriented individuals, fostering a competitive corporate culture. Conversely, companies with a lower variable portion may face challenges retaining top performers and maintaining a high-performance environment.

Tailoring Pay Mix to Market Dynamics

Designing the right pay mix necessitates a nuanced understanding of market comparatives and cultural preferences. Pay mix varies by region and country, with some cultures more receptive to aggressive pay mixes than others. Therefore, companies must align their compensation strategies with local norms while remaining competitive in talent acquisition and retention.

Conclusion

Pay mix is a strategic tool that significantly impacts employee attraction, firm culture, and overall performance. A comprehensive approach to compensation and aligning pay structures with organizational objectives can position companies for sustained success in a competitive marketplace. Optimizing pay mix and remuneration systems to suit individual company needs and objectives is essential for achieving this success.

We are at your disposal for further questions and suggestions regarding how you optimally design 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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