- Short Description:
- A compensation model common in other professional services firms where partners “own” deals that they source and are compensated largely on the results of those deals.
- Benefits:
- Accountability may spur some to greater levels of performance
- Attract and retain stars: some high-performing partners may be attracted to or stay for longer with the firm knowing they will have a large percentage of the upside they produce. It reduces incentives to start another firm.
- Easier to spark necessary turn over. For those partners that are not performing well, they may choose to leave or other partners can more easily start a conversation about the need to perform or make a change.
- Trade-offs:
- Long Measurement: since it is difficult to provide the meaningful measurement of performance on a quarterly or even annual basis, the performance weight may be a reflection of work done many years ago and not reflective of current value creation.
- The network and knowledge of anyone partner are going to be more limited than a combination of people. A lack of incentives for coordination or sharing can undermine the power of the firm to leverage collective knowledge or network to help all portfolio companies.
- Impact on culture and other staff: if partners primarily see themselves as in competition with each other, it can create pressure on other team members to pick sides and for some is not a motivating work environment.
