Performance-based fees can improve consultant's work
Preparing to lay off 150 employees, a manufacturer cuts a substantial check and retains a professional outplacement firm to develop and implement a career counseling program. But months after the program is started, many of the displaced employees still are collecting unemployment benefits. Some have filed lawsuits against the manufacturer.
The outplacement firm submits ongoing invoices against the retainer, which is exhausted within a few months. But the program is not complete and, as time goes by, the client company is unable to track the status of its displaced employees. In addition, the client has no input as to the effectiveness of the outplacement program and nobody to complain to.
Some outplacement consultants complete their assigned tasks to the client's satisfaction. Others, like the one just described, accept the retainer and do an average job or worse. Some ask for more money later to complete the job. Others leave such a mess that the client files a breach-of-contract lawsuit and hires another firm. The traditional retainer system (consultants collect their fees upfront) makes it difficult for companies purchasing these services to get their money's worth.
So how can you ensure optimal results for outplacement services? The solution is simple and one that many businesses apply every day in dealing with their own employees: pay outplacement consultants based on performance. You'll receive quality work, because the outplacement firm knows it will not collect the full fee until it reaches well-defined project goals.
HOW THE PERFORMANCE-BASED SYSTEM WORKS
The time is right to limit the use of the traditional payment system - a system that ensures consultants have less incentive to do a good job. In performance-based compensation, you pay an outplacement firm part of its fee upfront to cover professional time, operating costs and expenses while the project is being planned and implemented. Withhold a meaningful amount of the fee until the project is complete. The remaining money represents a bonus for doing good work, and that's great motivation for a consultant to perform to your satisfaction.
You can also arrange to pay the consultant on a case-by-case basis. For example, pay for each employee who has found another full-time job that meets his or her career and compensation goals. Or, you can pay a performance bonus when a certain percentage of the displaced group secures new jobs. Many outplacement firms will demand a full retainer check without guaranteeing performance. They will say it's impossible to guarantee results, because variables such as a weak economy would make it harder to find new careers for several hundred displaced workers. But even if such a firm's reputation is rock-solid, the refusal to agree to performance-based compensation is one reason to give competitors a long look.
A crucial point in performance-based compensation is when you and the outplacement consultant agree that the project is successful and deserves full payment. Use common sense. If the consultant did not reach every goal, he or she may have provided some valuable services such as updating employees' resumes or teaching interviewing strategies.
ENSURING LONG-TERM COMMITMENT
In a traditional payment system, the outplacement firm may scale back its commitment to the project because of dwindling retainer funds. With performance-based payment, the consultant's motivation is to collect the full fee at the end of the project, not to cut corners.
Ask the firm for detailed reports on the project's progression. This way, they can prove that they deserve the performance-based money, and you can spot red flags or offer direction before it is too late.
If, under performance-based compensation, you do not get the results you expect from a consultant, withhold the final payment and move on. Frankly, this is rarely the case when the fee structure is performance-based. The consultant will most likely exceed your goals to ensure that he or she collects the full fee.
When searching for an outplacement service, always solicit more than one proposal. Remember, you can insist that the fee structure be performance-based. Time spent negotiating such an arrangement upfront is much more fruitful than defending against employee lawsuits after an outplacement project has fallen apart.
Posted on 16/10/08