Performance-Related Pay: Blessing or Curse?
A tailor only gets his money if the dress fits. A mechanic is only paid if the repairs carried out have fixed the problem. Why should business consultants be any different? Why should they be paid even when their recommendations do not lead to success?
The currently fashionable demand for performance-related pay for consultants is all of a piece with the current climate. Consultancies come in for criticism if – and this is a real example – they draft expert papers on how to reform the universities in Berlin that, it turns out, are based on the student experiences of their youngest employees. Well-established strategists are increasingly forced to justify the expensive but often ineffective blue-sky projects of their recently graduated colleagues. The accusations of charlatanism levelled in such cases can be heard more clearly than ever.
By offering performance-related fees, consultants signal to their customers that they do more than produce strategy papers filled with highfalutin ideas: that they will actually get their hands dirty and implement the recommendations in these papers as well. What better promise is there than a ‘money-back guarantee’? A promise that convinces the supermarket shopper should also work for clients in organizations and public administrations. But are performance-related fees really a good idea?
In particular, complex areas of activity are characterized by the fact that the performance of the actors is not remunerated on the basis of success but on the basis of invested time. A lawyer will still get his fee even if he loses the case. A doctor is paid even if the patient does not survive the operation. A priest receives her salary regardless of how many new worshippers she adds to the flock, or even just gets to attend mass.
From the perspective of the sociology of professions, the negative attitude towards performance-related pay is not surprising. For professionals whose success depends on the cooperation of clients, performance cannot easily be standardized by establishing simple, quasi-technical, cause–effect relations. Lawyers, doctors, priests, and even consultants are powerless if their clients decide to do it their own way. What would happen if performance-related pay were introduced across the board, if it were more than just a flavour-of-the-month topic for business journalists?
Most likely, the quality of projects would neither significantly improve nor significantly deteriorate. But there would be numerous success stories, and consultancies would leap on these to blow their own trumpets. Just as any good manager knows how to calculate a positive result for the short term, a consultant knows how to demonstrate that his project has been a great success. Were performance-related fees to be introduced across the board, this sort of window dressing, of which consultants have already made a fine art, would become even more sophisticated.
When consultancies find that their clients want to agree a performance-related fee, they have a decision to make. They can either assume responsibility for the running of the processes in question, as is now frequently the case in IT consultancy, in which case they stop being consultants and become entrepreneurs. Or they can stick to their role as consultants, with responsibility remaining with the client. In this case, performance-related pay should only be an additional gratuity of a size that makes it more or less immaterial for both client and consultant.
