That missed opportunity is significant because there may not be a better way to motivate change than by public recognition and praise. In fact, I would propose that if there were a choice between a system that publicly praises the top-performing professionals in a firm for some type of contribution (for example, business development) and another system in which partners are paid for business development but the individual results are kept secret, the firm would likely see better behavior in the first arrangement. Compensation, especially if the results are not known, will only reward what is already happening. As any teenager can tell you, peer pressure is an entirely different force of change.

When you define and measure the top performance, you also create an opportunity to tie it to rewards and promotions (while emphasizing fairness). But even those companies that want to compensate performance have a hard time because they have no history of doing it. They are unsure what metrics to use, and a new system seems scary. Professionals have likely never been scored in those companies or evaluated, and the new compensation could produce surprising, even shocking results or seem arbitrary and perhaps unfair.

If a firm wants to change behavior, I would suggest starting with measuring and reporting individual results. Once those measures are understood, it will be easier and more acceptable to the staff when a company ties those measurements to pay.

Differences In Hierarchy
The flat organizational chart is often a virtue only to the founders of advisory firms. For everyone else, promotions are a goal, a measure of progress and things that give employees a sense of achievement. If there are only two professional positions in a firm—associate and partner, I promise you that associates feel disheartened. They likely feel like marathon runners without mile markers. They may be at mile 10 or mile 15, but either way they have a very long way to go. They might not know they are on the right track or what they are supposed to do next, and those questions can become overwhelming. The partners, junior or senior, will not be much happier either.

“Hierarchy” is not even the right word. The right word is “status.” Everyone has a status in his or her organization whether it’s documented or not. The organization not only tells you “who is the boss of whom” but allows itself to control how people obtain status and steers them toward the right types of behavior. Without an effective hierarchy, status is earned in ways that are perhaps counterproductive or plain wrong—it comes down to who has been here the longest, who works with the largest client, who talks to the CEO, and so on. Ideally, status is earned through performance, and so is compensation.

Differences In Compensation
Compensation gets most of the attention when it comes to rewarding achievement, but I would like to repeat that public recognition is just as important—and perhaps even more effective. Incentive compensation (“bonus”) plans are a well-known way of creating difference and rewarding those that perform the best. A good incentive plan, though, begins with a transparent system of measuring performance. If it’s not publicly known (you get a check but no recognition) and if the results are often not large enough, then the results will be minimal.