Careers and compensation

in consulting

 Personal characteristics of consultants

 Compensation policies and practices
 Personal characteristics of consultants

Management consulting is a profession with its own objectives,

methods, rules and organization. To individuals who join this
profession, consulting is a career in which they may spend the main
part of their working lives.To become a career consultant is to make a
major life decision. Individuals considering the career and consulting
firms should therefore think very care­fully about the characteristics that
make someone a suitable candidate.Management consultants have
discussed these characteristics many times and useful advice can be
found in several publications.1 As for any profession, there is no one
perfect model against which every entrant can be measured, but there
are certain characteristics that affect the consultant’s chance of success
and personal job satisfaction.
 These characteristics differentiate the consulting profession from other occupations
that also require a high level of technical knowledge and skill, but that have other objectives
and use different methods (e.g. research, teaching, or management jobs with direct decision-
making authority and responsibility). In management consulting, particular importance is
attached to analytical and problem-solving abilities, as well as to competence in the
behavioural area, in communicating and working with people, and in helping others to
understand the need for change and how to implement it.
What kind of person is able to perform
appropriately the multiple roles required of a
management consultant? The qualities a
consultant needs fall into two broad categories:
intellectual abilities and personal attributes.
 Sense of organizational climate
Intuition, or “sensing”, must be coupled with insight in order to assess the nature and
patterns of power and politics in the organization. Bureaucratic and managerial structures,
both public and private, often do not function optimally. Underlying and intermingled with
the functional operations of the organization are the dynamics of internal power and politics.
Invariably, people are vying with each other for organizational influence or for some
internal political reason. Very often the consultant has been brought in, not just to provide
needed assistance, but also as an instrument of a strategy designed to secure an objective
related to such influence.
Unless the consultant can intuitively sense the organizational
climate, he or she runs the risk of being a pawn in a game of
organizational politics. Conversely, the consultant who has the
ability to recognize and understand the dynamics of the internal
power and political relationships can use them in pursuit of
whatever change objectives client and consultant conclude are
appropriate.
 Apart from these diagnostic abilities, the consultant needs implementation skills.
Obviously, he or she must have some basic knowledge of the behavioural sciences, and the
theories and methods of his or her own discipline. But more than these, the consultant needs
imagination and experimental flexibility. Resolving dilemmas is essentially a creative
activity. No real-life situation is going to fit perfectly into the models suggested by standard
techniques or textbook methods. The consultant must have sufficient imagination to adapt
and tailor concepts to meet real-life demands.
Furthermore, the consultant must be able to visualize the
impact or ultimate outcome of the actions proposed or
implemented. This is as much a process of experimental trial
and error as of a priori solutions. The courage to experiment
and the flexibility to try as many approaches as needed to
solve the problem are important ingredients in the
practitioner’s make-up.
 Recruitment criteria
While consulting firms apply different criteria in
recruiting new consultants, a comparison of their practices
allows for some general conclusions concerning personal
characteristics, education, practical experience and age.
 Education is carefully examined in
every case. A university degree (first
degree, master’s degree or doctorate) is
required for all management consulting
positions. The relevance of the field of
study to the particular field of consulting is
considered, and in some cases candidates
must have a specific educational
background, for example, a doctorate in
psychology, or a degree in computer
science. The consulting firm is equally
interested in the performance of the
candidates during their university studies,
in particular in project assignments during
which the students have practised fact-
finding, communication and other
consulting skills.
Practical experience (a minimum of five to ten years) used
to be required by all consulting firms, but this has changed in
recent years. Some important firms have started recruiting
up to 30 to 50 per cent of new consultants directly from
university or business school, particularly in special fields
where it is difficult to recruit people with required technical
knowledge and experience
 Qualities of a consultant

Intellectual ability

 ability to learn quickly and easily

 ability to observe, gather, select and evaluate facts
 good judgement
 inductive and deductive reasoning ability to synthesize and generalize
creative imagination; original thinking
Qualities of a consultant

Ability to understand people and work with them

 respect for other people; tolerance

 ability to anticipate and evaluate human reactions
 easy human contacts
 ability to gain trust and respect
 courtesy and good manners
 Ability to communicate, persuade and motivate
 ability to listen
 facility in oral and written communication ability to share
knowledge, teach and train people ability to persuade and
motivate
Intellectual and emotional maturity

 stability of behaviour and action

 independence in drawing unbiased conclusions
 ability to withstand pressures, and live with frustrations
 аnd uncertainties
 ability to act with poise, in a calm and objective manner
 self-control in all situations
 flexibility and adaptability to changed conditions
 Personal drive and initiative
 right degree of self-confidence healthy ambition entrepreneurial
spirit
 courage, initiative and perseverance in action
Ethics and integrity

 genuine desire to help others extreme honesty

 ability to recognize the limitations of one’s competence ability to admit mistakes
and learn from failure

Physical and mental health

 ability to accept the specific working and living conditions of management

consultants
 Factors affecting careers

In a typical consulting career there is a significant relationship between

progres­sion in rank and role. A higher rank means a more difficult role and
more responsibility. The relationship is not the same in all firms. Some
prefer a conservative approach, whereby precisely defined functions are
assigned to each rank in the consulting hierarchy. Thus, only a consultant of
a high grade would negotiate with a potential client. In contrast, many firms
are increasingly flexible in deciding what consultants can and should do,
irrespective of rank. For example, a consulting project may be managed by
an individual in any of the four principal grades (starting at the operating
consultant level), depending on the scope of the project and the capabilities
of the individual.
 These firms encourage young operating consultants to assume responsibility for more
difficult jobs and for managing assignments, and thus to expand their capabil­ities, as soon as
possible after joining the firm. Even consultants with relatively little experience are
encouraged to manage projects, present results to clients, and take initiative in working with
clients.
Career advancement is based above all on achievement. As seniority is
difficult to ignore, individuals who cannot demonstrate high
achievement are encouraged to move on. If they stayed, they would see
their younger colleagues advance more rapidly, which would inevitably
create jealousy and lead to frustration. It is often emphasized that every
young consultant should be regarded and treated as a potential partner,
and that career development to partner level should not take longer than
6-12 years.
 Career structure in a consulting firm

First level: junior consultant (trainee, research associate,

analyst, entry-level consultant)
This level exists only in some firms, which recruit new
consultants as trainees (for 6-12 months); their main task is to
master the essential consulting skills as quickly as possible.
 Second level: operating consultant (resident consultant, associate, associate
consultant, management consultant, consultant)
The operating consultant is the front-line professional who does most of the consulting
work at client organizations. Every operating consultant has a special field of competence,
as a rule in one management function or in special techniques. Normally the consultant
would undertake a number of operating assignments in varying situations, individually and
as a team member, for a period of three to five years before being considered for promotion
to the next level.
 Third level: supervising consultant (team leader, project manager, senior associate,
senior consultant, manager)
The main responsibilities of consultants promoted to this level include team leadership
(e.g. in assignments requiring expertise in general management and involving several
functional areas) and supervision of operating consultants. A consultant at this level also
continues to execute directly certain assignments that require an experienced person.
Further responsibilities may include training, management surveys, the marketing of new
assignments, and maintaining contacts with clients.
 Fourth level: junior partner or equivalent (principal, manager, survey consultant)
Consultants at this level carry out a number of marketing and management functions.
Typically they spend most of their time in promotional work (visiting clients, doing
management surveys, planning and negotiating new assignments). Some may be personally in
charge of important client assignments, while others head organizational units within the firm,
or coordinate and control a number of client projects.
Fifth level: senior partner or equivalent (officer, director, partner,
managing partner, vice-president, president)
Senior and top management responsibilities prevail at this superior level,
including strategy and policy direction. Consultants at this level are also
concerned with practice development, do promotional work with
important clients, and may be personally in charge of complex and major
assignments. In most firms they are the owners, but there are firms where
the junior partners or principals (the fourth level) also belong to the
group that owns the firm.
 Staff reviews
There are two reasons why systematic staff reviews
(performance assessment) are probably more important in
consulting and other professional firms than in other sorts of
organization:
The career patterns described above require consultants to
develop rapidly and assume a widening range of
responsibilities. It is difficult to find work for consultants whose
growth potential is limited and who will not be able to keep
pace with their more dynamic and ambitious colleagues.
 The operational environment in which a consultant works
(individual role in an assignment, team leader, immediate
colleagues, client staff) changes frequently, and an operating
consultant may be a member of five or more different teams within
one year. Performance evaluation must therefore be organized to
collect and assess all the information needed for the consultants’
careers and professional development in this constantly changing
work environment.
Thorough evaluation of a new consultant should therefore start during
his or her initial training, and several reports should be prepared.

The second element in systematic staff evaluation is formal

performance review at the end of each assignment. These reports are
prepared by the team leader or supervisor, discussed with the
consultant, and filed in personnel records. Feedback from clients
should also be sought, both informally and through client feedback
questionnaires.
 The third element is periodic performance appraisals. As a rule, these are more
frequent in the first two or three years of the consultant’s career. They are generally
based on reports from all assignments and evaluate performance, competence and
prospects in areas such as:

 the technical subjects covered;

 consulting methodology and style;
 teamwork;
 team leadership, supervision, coordination;
 marketing and client relations;
 training and self-development;
 special personal characteristics, manners, interests and talents.
 Every periodic performance appraisal must aim to tell both the
firm and the indi­vidual, openly and clearly, where to focus
improvement efforts. If an individual consultant would be better
advised to look for a career outside consulting, a per­formance
appraisal should reveal this and make an unambiguous
recommendation. It is unfair not to tell young consultants that their
career prospects are limited, thus creating unrealistic expectations
and merely delaying a painful decision.
 It is useful for consultants to prepare for every performance
appraisal by completing a structured self-evaluation. The consultant
thus assesses and describes his or her own achievements, progress
made, strengths, weak points and needs, which is a good starting-point
for evaluation by the supervisor and the firm. It also reveals the
consultant’s personal perceptions of standards and work performed and
his or her self-assessment ability.
 Staff turnover
Not all consultants will stay with one firm until retirement. Staff turnover figures in
consulting are quite high: an annual turnover of 10-15 per cent is considered as normal, a
5-10 per cent turnover as
low. The reasons for consultants’ departure include:

 different views on how to do consulting;

 different views on career advancement;
 entrepreneurship (quite a few consultants employed in consulting firms decide to start their
own consulting practices);
 personal preference for other careers (business management, government administration,
university teaching, politics, etc.);
 insufficient promotion prospects;
 personality clashes.
Large consulting firms tend to have a higher staff turnover than
small firms. Many young professionals join these firms in order
to gain diversified experience in a relatively short time, without
intending to stay in consulting. This is less common in small
firms. In addition, small firms usually try to be more adaptable
to the needs and aspirations of individual staff members even if
this means reorienting and restructuring the firm.
 In a large firm, most consultants who leave do so at the operating consultant’s level.
Voluntary departures at the partner level are relatively rare. However, forced and negotiated
departures of partners, before retirement age, have recently become more frequent. In
searching for leaner structures and competitiveness in a difficult business climate, a number
of consulting firms have come to the conclusion that they cannot afford to sustain large
numbers of highly paid (though not always highly productive) partners without under­
mining the firm’s financial health and staff morale.
 Compensation policies and practices

The compensation policies and practices of management consulting firms are

based on principles similar to those in other firms in the professional service sector.
Compensation reflects factors such as:

 the technical complexity and special requirements of consulting work;

 individual talent;
 the situation in the market for consulting services;
 the financial performance of the firm;
 the contribution of the individual consultant to the development and financial
performance of the firm.
Financial compensation is not regarded as the only way to
motivate consultants. Long-term motivation is
emphasized by demonstrating to the new recruits that in
due course they will be promoted to the partner level,
when they will earn considerably more. The nature and
the job content of consulting, as well as the exceptional
learning opportunities and business contacts provided by
consulting assignments, are also strong motivational
factors.
 Entry-level and operating consultant
compensation

At entry level, consulting firms compete among themselves and

with other employers for the best talent. As a result, salaries
offered to new recruits tend to be higher than those offered by
firms in industry and commerce. In the total remuneration package,
the base salary usually accounts for more than 90 per cent and may
attain the full 100 per cent. Hence, the role of bonuses and profit ­
sharing is relatively small, although some firms stress that
consultants at all levels should be eligible for some bonus.
 The bonus paid to junior and operating consultants may be
discretionary and depend only on the profitability of the firm as a
whole. Alternatively, the consultants may get a bonus that is related
to the fees they (or their team) earn from their own clients, and to
new business that they generate for the firm.
If individual fee-earning and new business generation are strongly reflected
in the bonus paid, the message is clear that this is what the firm expects
from you. As a result, young consultants will become less interested in
helping other colleagues, engaging in teamwork or spending time on
activities for which no bonus is likely to be paid.
Experience has shown that even a small discretionary bonus is valuable
for consultants at any level. However, a bonus should not be paid
automatically, without a review of the consultant’s work performance.
Also, the bonus should not send the wrong signals on what the firm
values most in the consultants’ behaviour and performance.
 Partner compensation
Partner compensation is a complex and delicate issue of management in
professional firms. The partners are in a dual position - they own the firm, and are
therefore entitled to part of the profit, and they carry out specific managerial,
marketing or consulting jobs, for which they are paid a salary. The prevailing
formula used for partner remuneration tends to be a base salary plus profit share or
bonus.
For example, in 1998 senior partners in American consulting firms were
awarded bonuses and profit-sharing amounting on average to some 29 per cent of
their base salaries.4 In 1999, the average annual compensation in consul­ting firms
covered by a Kennedy Information Research Group survey was as follows: recent
MBAs US$79,000; consultants US$97,000; project managers US$158,000; and
partners US$388,000. Thus, remuneration of partners was four times that of
operating consultants.
 Partners and other professionals in equivalent positions
manage the firm and play key roles in promoting the business.
Their roles and performance ought to be reflected both in the
compensation formulas used and in the actual level of
compensation. If partner compensation criteria disregard, or are
in conflict with, the firm’s goals and policies, even the best
strategic plan will be nothing more than a piece of paper.
 In small consulting firms with a few partners, simple income or profit division
formulas are quite common. If there are three partners in a firm, each of them may
be allocated one-third of the profits. The formula causes no difficulties if, within the
small team, there is a team spirit, a clear division of responsibilities and an
understanding of who does what for the development of the firm. The three partners
will probably be able to speak frequently and openly about these questions and
change the focus by mutual agreement (e.g. spend more time on coaching a new
associate or start looking for a new line of business). It may be unnecessary and
even contrary to the firm’s well-established practices to formally reflect such
agreements in changed partner compensation.
The matter gets more complex with the growth of the firm’s business and the
number of partners and consultants employed. There will be a need for a
compensation plan for partners that reflects and supports the firm’s strategic
goals and priorities. As a rule, the plan will use a combination of a few criteria
(say three to five), which may be quantitative and measurable (e.g. the partner’s
personal billings) or qualitative and judgemental (e.g. the partner’s contribution
to junior staff coaching and training, or to building up the firm’s image in
professional and client circles). Each criterion will be assigned a weighting.
Consistency between the criteria declared and actually applied is essential.
 The practical impact of each criterion needs to be carefully
considered. Furthermore, periodic performance evaluation ought to be
applied even to partners in senior management positions, using a
formula that stresses collective assessment and is acceptable to senior
professionals. For example, a partner can be asked to prepare a self-
assessment of performance using the main criteria chosen by the firm.
This is then reviewed by a compensation or manage­ment committee
and discussed with the partner in a committee meeting or individually.
 CRITERIA FOR PARTNERS’
COMPENSATION

Seniority
Widely used. Still an exclusive criterion in some distinguished professional
firms. Encourages partners to get used to a stable income level irrespective of
current personal effort and achievement.
Profitability of firm
Widely used. Encourages partners to focus on helping each other, promoting
teamwork and improving the whole firm’s results.
Profitability of activity supervised or managed
Widely used. Puts a high premium on actual results of the partner’s projects
(assignments) or of a unit for which the partner is directly responsible.
 Personal billing
Widely used. Stimulates interest and initiative in doing individual billable work.
Also remunerates for a high personal billing rate (fee rate) reflecting individual
competence and image (which can be a separate criterion).
Personal selling
Encourages finding new clients and projects, or obtaining new work from existing
clients. Possible refinement: differentiating between new work of routine
(repetitive) nature, and projects providing for acquiring new compet­encies, entering
new sectors or similar.
 Client satisfaction
Encourages partners to look after clients, assure high quality and manage
assignments to their clients’ full satisfaction.
Training and development of consultants
Stresses transfer of experience and know-how, and the partner’s role in
coaching and developing younger consultants.
Contribution to the profession
Remunerates voluntary association and other work serving the profession.
 Contribution to the success of others
Rewards collaboration and help to other units through sharing of information,
providing advice, giving leads, helping to negotiate new assignments. etc.
Contribution to knowledge management and development in the firm

Rewards research, new method development, writing of practice guides,

knowledge-sharing and other work enhancing the firm’s knowledge and
competence.
 In conclusion, it is useful to stress that a compensation policy or plan has a
strong impact on the climate in the consulting firm. Consultants at all levels should
know what the policy is and how it is justified. They should have no reason to
suspect that the firm’s management uses a double standard in applying the policy to
different staff members and different levels of the consulting hierarchy. The purpose
of a compensation policy is to motivate the whole staff and stimulate achievement,
not to protect privileges and create tensions between groups and categories of
consultants. Salaries must be com­petitive at all levels to attract and retain able and
competent professionals and build up the firm’s human capital.
 Compensation policy should be proactive, not merely reactive to observed
market trends, and should aim to prevent the exodus of talent and to motivate
individuals for a long-term view of their career, learning and achievement.