Incentive compensation

Management incentives can be used to motivate key staff and to build capital and liquidity for individuals in the event of a transition.

Growing organizations face plenty of struggles, but one issue I encounter frequently is the rapid increases in stock values from year to year. Another is a disjointed organizational structure that is not widely understood throughout the firm as it grows and changes. With both of these issues, there is one area of management that can be used to help remedy (or create new) disputes. Incentive compensation! Management incentives at design firms can be employed to motivate key staff, but they can also be used to build capital and liquidity for individuals in the event of an ownership transition. There are plenty of ways to bonus stock, bonus cash to be used for stock purchases, utilize defined contribution plans and safe harbor 401(k)s to build pools of cash; but not having the right communication in place to let people know how and why these programs exist can be just as detrimental as not having the programs in the first place.

After all, we are trying to elicit certain behaviors from individuals with this effort. We cannot lose sight of that opportunity with the roll out of a new incentive program. Whether that is selling work, doing work, managing staff, or some combination of all three, getting leaders to work toward a common purpose is the overarching goal. Sometimes, decision making and authority can get muddled in a growing organization, leading to overall restlessness among key tiers of the organization as staff compete for the ability to make decisions. In some instances, staff will go rouge and alienate entire profit centers from the mother ship as they try to pave their way to becoming noticed. If this is done outside of the direction of the president, CEO, or managing partner, the impacts from these kinds of moves can be wide ranging and quite disruptive to an organization.

One of the ways leaders in growing organizations can combat this is by using strong incentives to keep key individuals aligned with the values and goals of the firm. Ownership is one tool for gaining alignment, but that may not be the best option for some firms. Cash bonuses are another option and title changes coupled with raises are yet another. The associate pool seems to be a dying breed in the industry as it fails to convey the prestige that comes with other titles and can even become a landing area for aging staff, leading to a mix of high performing young professionals on the path to principal with a pool of aged professionals who have not risen to the next stage.

The messaging gets tricky as you create new titles, but aligning incentives for individuals with their path in your organization is the ideal goal here. Finding high performers and rewarding them should be a constant activity for firm owners. As it relates to ownership transition, beginning to position these staff for ownership should be a priority. Perhaps the most important thing here for firm leaders and owners is to define what it means to be an owner, associate, or project manager and connect incentives to those areas as it relates to the job role expectation. Do this in the context of your overall firm strategy and tie it to your ownership transition strategy.

Will Swearingen is director of ownership transition advisory services at Zweig Group. He can be reached at wswearingen@zweiggroup.com.

Zweig Group’s 2020 Incentive Compensation Report provides firms with important data that they can use to improve the programs they have in place; start up new plans from scratch; decide which employees should receive which types of bonuses, how often, and at what amounts; and more.