by John Bloor2
Going Beyond the Daily Rate: Should Interims Be Further Incentivised?
With some recent debate around the different ways in which interims are remunerated, John Bloor discusses whether interims should be given further incentives for assignments.
An Interim’s Daily Rate can be a subject that generates more heat than light, often because it’s seen as a salary substitute and attracts comparison with what permanent employees are paid. But it’s not an employment cost, it’s a cost of services and if comparisons are to be made, it should be with the cost of the same or substitute services from another provider that deliver the same or better value with return on investment being the key determinant.
There have long been attempts made to ‘finesse’ interim day rates; a performance related element is often talked about and now there is online chatter about ‘payments in kind’ which look suspiciously like employee benefits to me. If that’s what they might look like to HMRC as well, I think you can deal with the payments in kind discussion quite quickly.
Interim Performance Payments
But what about performance payments? If you’re the payer you might just think it’s as a way to keep the cost down; if you’re the receiver you might just think it’s a way of getting the price up. There is a private equity firm I know (and who still speak to me) that always raises performance related payment, citing “skin in the game” or “aligning interests” when you know that they just don’t like the day rate – any day rate - or see why they should pay it.
It seems a bit odd to me to have a conversation with a client along the lines of “If I do this thing for you well, you can pay me X, but if I do it for you really well then I want you to pay me Y”. I think the client is entitled to expect the task to be done really well as a base line and to know what his investment is going to be to get that done. And you never hear the X minus discussion. “If you think I haven’t done it very well, I’ll give you this much back”.
Interims are professionals who provide professional services. When we talk about “professional services” we tend to think accountants, lawyers, consultants. I’m not sure if they ever go performance related – or indeed if their regulatory bodies would allow it (and don’t believe ‘no win, no fee’ actually means no fee). Thinking back to my PwC days I seem to recall that any event based payment was pretty much off limits.
The thing about performance payments, even if you could convince yourself that they only encourage the right sort of behaviour, is having a trigger that both parties are happy with and against which performance can be measured objectively. For short term assignments – which is what most interim assignments are – deciding on what the trigger should be usually falls somewhere between very difficult and impossible. An interim is no more likely to be happy with a client set trigger before commencement of the assignment than a client would be with an interim argued one a month into the task. And it just becomes an unnecessary distraction.
So my view is that unless the circumstances are exceptional – and in a couple of instances we have managed ‘bonus schemes’ on very long term interim assignments – incentive payments do not sit well in the world of interim.
But you may be encouraged to hear that at the end of a particularly difficult assignment – but one where the outcome was highly successful, the client board voted to make a discretionary bonus payment to the interim. But they didn’t know where to pitch it and gave the interim a cheque and told him to fill in the amount. The cheque was paid and he’s worked for them again.
What are your thoughts on bonus payments for interims? Do you think this sort of incentive has a place in today’s market? Share your thoughts with us and our community.