Value-Based Compensation

Postponing compensation as results are generated.  Is this the infamous “Test drive” or “Try before you buy?”  Perhaps.

PV Calc
Present Value Accounting Calculation

I’ve been observing a process (organization to remain unnamed) at an affiliation of experts “starting up” their brand.   The question of compensation models emerged, and has taken a rather long time to craft into a page they published online.

They call it Value-Based Compensation.  I wonder if it’s wise?  I’ll admit this could be “disruptive” in their space, but is it really the business model they plan to retain?

We used to call the collaborative pay-upon-success approach — “Process Co-Ownership” — stakeholders, each having an interest.  Success based on the performance of the partners attaining “milestones”.

Our discovery?  That too much time (value) was hemorrhaged trying to plan and document — then — agree on progress assessments. Relationships dissolved owing to … many factors.  As a recourse, we fell back on T&M engagements and ignored opportunities of this kind with great prejudice.

If you try this — avoid the perception of being “too hungry.”  It’s downside risk of these kinds of agreements, honestly.

And there are two aspects that you’d be wise to evaluate:

  • Why is the client willing to engage thus?  Are they looking an “agent of blame” (as contrast to an ‘agent of change’) — will it be more convenient for them to fail, than to succeed?
  • Why am I willing to engage thus?  Inking a deal MUST bear some tangible value of some kind and it must manifest immediately…
Call this the “present-value’ of future work, payments differed.  It’s a similar concept to the financial computation, except that the value balloon is at the front.

If you’re engaged in co-successful projects, at the point of ink — require permission to:

  • Add the client to your client lists
  • Make press releases, announcements with pictures
  • Obligate client principles to say good things about the engagement — script these in advance — the where’s and when’s.
  • Be sure that those good things are public…
  • Get them in written form, publish them as testimonials.

Do all of that UPFRONT.

These are a hedge against lack of attention, and diluted involvement issues — reputations needed be invested.

Create Present Value for your business — And then manage the engagement to cash payments later.

You’ll need to balance events like this with paying gigs.  Continue to prefer T&M clients that cover your current bills until the bigger ships can come in.

Sometimes those ships may not, but your PR will remain.

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