What Is the PAEI Model?

Producer,Administrator,Entrepreneur,Integrator.

The person in the producer role is ultimately responsible for the product or service that you're offering. They are in charge of meeting goals and objectives and making sure that the end product delivers the expected results. Producers often work fast, and they tend to focus on the end result. They work hard and get things done.

Administrators focus on how tasks are completed. They're interested in the rules and policies that help your team or organization function. They are often highly analytical, concentrating on ensuring that people follow procedures correctly. They often take a slow, structured approach to problem solving and decision making.Organizations often depend on administrators to develop the processes and systems that keep everyone working efficiently and productively.

Entrepreneurs are full of ideas. They're inspired by what's possible, and they're gifted at building a shared vision of the future, seeing things that other people can't see, and taking calculated risks.Organizations depend on entrepreneurs to come up with the big ideas that allow them to maintain strategic advantage and enter new markets. They also rely on people in this role to spot opportunities and threats , and help others respond to change. Entrepreneurs can often use an unstructured approach to solving problems and making decisions, and they tend to focus more on a global than a local perspective.

Integrators are the "heart" of a team or organization. They excel at bringing people together and maintaining harmony within a group. They can also rely on an unstructured approach when solving problems, and tend to work more slowly and methodically, as their focus is on the process and not the end result.

As CEO of Marshall & Gordon, Kelly Browne launched a new business, Executive Positioning Practice (EPP), which is focused on developing and enhancing the reputations of a clients senior executives. The new strategic direction is intended to embed Marshall & Gordon at the heart of a clients leadership and strategic decision-making processes. It has been two years since the launch of the service and the results have been meager. Please complete the following:

1. Analyze the situation with the EPP using the tools you have been introduced to; PAEI roles, capi, lifecycle; as well as your own experience to provide an explanation for the failure of the new service to make an impact.

2. Using concepts from our previous class and your own experience provide an alternative approach to launching EPP service that you believe would produce better results. Include the role of compensation in your approach

Marshall \& Gordon: Designing an Effective Compensation System (A) Kelly Browne, CEO of leading public relations firm Marshall \& Gordon, sat in her corner office in the company's New York City headquarters. It was late on a Friday evening in March 2011, and Browne was trying to finish up her day. She still needed to get through a stack of paperwork and unanswered e-mails and put the final touches on a report she would give to the firm's executive committee early Monday morning. A pile of interview transcripts sat ready for her to take home to read on the weekend. They represented six weeks of data-gathering by external consultants hired as the first phase of overhauling Marshall \& Gordon's compensation system. Browne had scheduled a mid-April off-site with the executive committee, practice and regional heads, and the firm's entire HR team to plan the launch of a firmwide performance management system, part of which included the design of a new compensation system. She had less than a month to prepare for what she knew would be several long days of contentious discussions. Her phone rang, and recognizing the caller ID, she picked up. "Hi. I know it's late. I won't be home in time for dinner. I'm sorry." She hung up and looked over the unread e-mails in her inbox: several updates on recent lateral hires; a long string about an important pitch in China that had failed; several client and partner e-mails; and the one she dreaded most-an update from her head of HR on the compensation system review, with interviews and data. The phone rang again; she sighed and picked up without checking who the caller was. "Hey Kelly, Matt Pearce here. Thought I might catch you at the office." It was an old classmate who ran a large global executive search firm. "I wanted to congratulate you on the recent Wall Street Journal coverage. Sounds like M\&G is going gangbusters. I hope we can help you as you fill out some of your consultancy gaps." Browne smiled. The previous week, the Wall Street Journal covered Marshall \& Gordon's year-old strategy shift, which had entailed significant investment in building the firm's fledgling executive positioning business to complement its 125-year-old global public relations (PR) business. "It's pretty exciting Matt, thanks. I know you can appreciate the challenges. Our firms face similar issues in cross-selling new services and getting partners to collaborate. But I didn't realize just how hard it would be. PR and executive positioning are different enough that it's tough to get professionals from each side even to understand each other's business, let alone trust someone else enough to introduce them to clients." Pearce agreed: It's hard. Some of my biggest producers were completely alienated when we added human capital consulting two years ago and asked them to include newcomer consultants on their client pitches. And these are powerful guys. They are the linchpin to some important relationships for our firm. But I suspect the "silo mentality" is even worse in your firm, given how you pay professionals for individual performance. Browne ignored the jab at her firm's incentive system. She knew rumors of the compensation review were already circulating in the PR market, and Pearce was fishing for more information. "The good news is that my boss is 100% behind me," said Browne, and briefly relayed how Marshall \& Gordon's new offering dovetailed with her parent company's strategy to continue shifting the company's business into more upscale sectors. The two friends caught up for a few minutes, but Browne was distracted by the late hour and thoughts of her family at home. As she finished the call, she packed up her laptop, grabbed the stack of transcripts, and headed to her car. Public Relations Industry Overview PR firms provided a range of services aimed at managing, protecting, and enhancing a client's reputation, brands, and products. One industry executive characterized traditional PR saying, "Historically, PR was about news clips-how many articles you could place about your client in the top-tier publications. The PR consultant's job was to create and issue press releases and use their connections with journalists to place the story as well as possible. The job's changed considerably, but there's still a perception that clients care about clips." Another PR industry insider concurred: Clients used to buy from a PR firm because of its relationships with journalists. PR has become a long-term program to build reputation for clients across a wide range of stakeholders - not just media, but also investors, analysts, employees, customers, politicians, and trade and regulatory bodies. Efforts can't just end after you place the WSJ clip. Now we are working to add value in more strategic ways such as helping them develop and implement a credible investment case and brand story. Since the 1990s, PR firms had been adding services to their portfolios that allowed them to develop a broader, perhaps more strategic, offering to their clients. By 2011, about three-quarters of PR agencies provided a full range of services, including media and investor relations, crisis management, lobbying, event management, and fundraising. In 2010, with combined annual revenue of about $9 billion globally, the industry was fragmented: the top 50 companies accounted for about 35% of industry revenue. 1 Business was highly competitive and small, local agencies could often successfully steal business from larger PR agencies. 2 Historically, firms had contracted with PR agencies for individual engagements or campaigns, which were bid at a rate that included a project fee covering resources used across the agency's offices. As with other professional services firms, since 2007-2008, some clients had sought to contract with their PR agency for a flat "retainer" fee to cover a range of PR services over time. Traditional PR consultants developed and managed relationships across multiple constituents: their client company (both management and employees), their client company's customers, local communities, shareholders and investors, and other institutions. Many consultants were fiercely territorial and guarded their relationships closely. Only one or two firms relied on team-based selling and execution. Most PR work was accomplished by seasoned professionals who developed their own reputation among clients and used junior, tactical teams only for background support. While many firms suffered as clients slashed PR budgets during the 2008-2009 recession, the top five firms chased after top-performing consultants, luring them with multiyear guarantees. 3 As competition for talent intensified, the industry was increasingly characterized by consultants' lack of loyalty to their employers, with consultants moving between competing firms and often taking clients with them. By 2010, several additional industry trends were noticeable. Firms were consolidating through mergers and acquisitions; firms were working to develop global competencies and expertise to serve multinational clients; and online tools, especially social media (e.g., podcasts, blogs, viral videos, social network sites), were becoming more powerful. Some firms were also finding that "green marketing" offered increasing opportunities for PR agencies to expand business with existing clients and acquire new clients. 4 Recently, several top-tier firms had begun diversifying into other extensions of PR services such as litigation support and reputation management consulting. The industry expected 2\%-5\% annual growth in 2011, with projected single-digit growth through 2015. Marshall \& Gordon Firm History Marshall \& Gordon was born out of a merger of Marshall, a small public relations firm founded in 1904 by James Marshall in Atlanta, and Gordon Partners, the in-house PR and communications shop for Ajax Oil Company, founded by Gerald Gordon in 1875 and based in New Orleans. The firm made the early strategic decision to focus on communications, brands, and product portfolios. In the mid1950s, it launched an Australian office with satellites in Southeast Asia and soon moved its headquarters to New York. In 1962, the firm was acquired by the holding group PTG, a worldwide media conglomerate with a large portfolio of leading advertising, PR, and media companies. Entities in the PTG family operated as separate companies, with their own P\&Ls and management structures. PTG went public in 1984. By 1999, Marshall \& Gordon was a major international player in the PR sector. Through organic growth and acquisitions, the firm had offices across the U.S., Asia, Europe, and in South Africa. Browne was named CEO in 2005, after many years as a top-performing consultant. A senior partner noted: She was a shoo-in for leadership, a proven performer renowned for her implementation of new media tools that helped establish us as the innovative partner in PR over the past decade. She is immensely charismatic; clients love her. She is a strong mentor and a highly successful recruiter. She helped build the initial risk-assessment team with three significant lateral hires at a time when the firm wasn't even looking in this direction. In late 2008, an important client, a South American nationalized oil company, experienced negative reactions from a slew of anti-Western comments made by the country's minister of trade, who was also chairman of the company's board. Marshall \& Gordon managed the media firestorm in the U.S. and across Western Europe and helped reposition the firm's senior leadership to counteract the effects of the minister's comments. The work had meant long days for the PR firm's Venezuela and Dallas teams, leveraging their relationships with the oil company's senior leadership to raise the executives' profiles, and position the profiles more specifically to benefit the firm. This work included building an approachable online presence for the company's new CEO, bringing him more prominently into the public eye by placing him at several key industry events, and brokering a headline-breaking partnership between the oil company and a highly respected Amazon Basin conservation organization. In the wake of the firm's success at turning popular opinion to the benefit of the oil company's senior leadership, Browne and her leadership team saw a new opportunity and formally launched an executive positioning practice (EPP) in early 2009. By 2010, the firm's expertise and client reach stretched across such diverse sectors as airlines, consumer goods, financial services, healthcare and biotechnology, education, oil, and mining. Marshall \& Gordon had also been early to leverage the Internet and, more recently, social networking tools to complement its PR services. In 2010, the firm reported revenues of $330 million. (Exhibits 1a and 1b provide more information on practices and regions covered; Exhibit 2 shows select financial information; and Exhibit 3 gives details on the firm's executive positioning services.) Organization and Project Execution By 2010, Marshall \& Gordon had a network of 48 worldwide offices on six continents with about 1,500 employees. The firm had 21 practice areas and numerous specialty services, along with 256 partners, 105 principals, and 88 senior associates. Support staff included research associates and executive assistants. Corporate functions, such as finance and HR, were centralized at headquarters. Practices were the primary organizing dimension at the firm. Each practice had its own revenue and business development targets and was led by a practice managing director (PMD). Regions were led by one or more regional managing directors (RMD), who were responsible for offices and personnel administration, and coordinated with PMDs. Both sets of managing directors reported to a chief operating officer who served on Marshall \& Gordon's executive committee along with Browne, the firm's chief financial officer, the head of human resources, the general counsel, and chief marketing officer. This executive committee in turn reported to the PTG board. Over one-third of the firm's top-performing partners and principals had started with the firm as interns or entry-level associates. Associates were expected to move into senior associate roles within two to three years; senior associates could become principals within five to six years. Promotion from principal to partner could take anywhere from three to six years, and was based primarily on a consultant's revenues billed and/or development of new (significant) client relationships. The firm had retained its strong individualistic culture as it acquired other PR firms and integrated new partners, principals, and associates into the Marshall \& Gordon family. Each project was individually led by a partner or principal, who put together a tactical team of researchers and (senior) associates depending on the nature and size of the project. Principals generally led projects that were smaller and/or for less prestigious clients, and they worked under partners to handle day-to-day project management for higher-profile engagements. As principals gained experience as project leaders, acquired strong expertise in the relevant sector, or developed close relationships with the client, they became increasingly independent. In terms of credit, fees for projects were "double-counted" for origination and execution (O/E) : the partner originating the work was credited for 100% of the project, as was the partner (or principal) leading the team to execute the project. Issues on Browne's Mind As she headed to her car for the hour commute home, Browne thought over the e-mails she had just reviewed. One was from a San Francisco-based partner, Janice Lu, who handled several important biotechnology clients under the firm's Healthcare practice and served as the managing director for the firm's North America-West region. She had sent a long e-mail railing against the firm's decision to make two lateral hires, one as partner in the Healthcare practice, and one into the EPP. Lu had had to accommodate both hires in the San Francisco office. She wrote: I am not trying to create waves, but I am shocked at the guarantees we've signed these two people on with! I see no evidence of either of them trying to develop new clients, or even coordinate with the biotech PR work we're running out of the office. They are not mentoring any of the associates. They're executing on business they booked before joining us, and that's pretty much it. They know they don't have to worry about hitting any numbers this year or next year either-because they won't be assessed for bonuses until 2013, when their guarantee expires. This feels outrageous to me. Am I really to believe we couldn't have lured them in on the salary and bonus scale the rest of us live with? Browne knew her response by heart: The industry had become increasingly competitive, and Marshall \& Gordon and its competitors looked to new venues for experienced talent with burgeoning rolodexes. EPP required people who could network and interact at the highest levels in corporate and public life, connecting credibly not only with CEOs but with the variety of stakeholders those CEOs cared about, including Wall Street analysts, activist shareholders, politicians, and the like. Such consultants didn't come cheap. But the newcomers' compensation packages, including salary and a guaranteed bonus, had been an ongoing source of tension inside the firm. Browne also suspected that Lu's anger stemmed partially from her resentment at having been given the management position without additional compensation for her increased responsibilities. Expanding Marshall \& Gordon's Services: Executive Positioning A handful of long-time Marshall \& Gordon consultants had both the interest and expertise to shift their specialty to the EPP, and the firm had brought in several prominent management consultants and lawyers with niche expertise in succession management, leadership, and positioning. Browne thought back to the original decision to launch the EPP group: A couple of clients had come to us informally, looking for guidance on enhancing the profile of their C-level executives. One of our prominent client's chief marketing officer had asked, "We have a compelling new strategy that our new CEO is driving. How can we get her voice heard, both internally and externally?" We had plenty of expertise when it came to brand reputation but at the level of people's positioning, it's much more nuanced. We recognized this work could take us into the heart of a client's senior executive teams. When we helped them on this front, the value to them was immeasurable. They were then bound to us in ways we couldn't develop through our typical PR engagements where we focused on sound bites or announcements. Browne recalled her mentor's reactions when the firm made the EPP announcement. Although he was about to retire, he had been extremely enthusiastic about the new direction. He told Browne at the time, "This shift has been a long time coming. Ever since I came into the business in 1983, I've longed for a way to truly differentiate ourselves from competitors. This gives us that opportunity." But he had also voiced concerns: I worry about how different these two kinds of work are. PR, the way Marshall \& Gordon practices it, is highly dependent on relationships, networking - for some of us, it's what I call "the schmooze factor." The executive positioning work requires a different person than PR, someone who has a completely different set of skills. The positioning work relies on more intimate relationships with the C-suite and involves strategic thinking, extensive interviewing, and other types of analysis. We'll need consultants with deep analytic skills, great facility with digital media, as well as close familiarity with leadership issues, government policy and regulation, and other trends. It will call on much more effective team-based work and will mean building completely different types of relationships with these clients. The trick is to persuade clients that their senior leadership's positioning strategically enhances their company's overall reputation. But execs often have to dip their toes in the water a few times before they see the value of positioning services. So to build EPP, I think it will take lots of small investments to get the business, which means that our traditional PR consultants have to trust their EPP counterparts and help them build the critical relationships inside their clients. Despite her reservations, Browne was confident that the new strategy was the right direction for the firm, particularly because the parent company was targeting more upscale, more profitable client relationships. Just last month in London, Browne had met with the CEO of a FTSE 100 company who said he was delighted that Marshall \& Gordon had helped re-position his consumer goods company as a leading-edge player on environmental issues. The EPP partner was becoming a trusted advisor to the CEO, and Browne knew that relationship had spawned traditional PR work for the firm's Hong Kong and Toronto offices, which had never served that client before. How was Browne to convince more partners to open their existing clients to EPP? One Firm, Two Practices Lu's e-mail had coincided with another, much bigger question that Browne had grappled with. Over the phone earlier in the week, a board member had debriefed Browne about the botched pitch to a large software company's China office. The client, a Silicon Valley giant, had been a longstanding client of Sean Birch, head of Marshall \& Gordon's software practice. Birch had spent decades in the firm's traditional PR business and was its top performer in terms of O /E fees. He had helped the client from its earliest days as a start-up and watched it grow to Google size. Recently the client had faced criticism in its newest (and largest) market-China. The firm had responded by setting up a separate Chinese operation and was in the midst of hiring top Chinese executives to run the subsidiary. The client had approached Birch for help with three things: identifying ways to position their new Chinese leadership in the local market, including which university they might partner with in building a new research lab; which Chinese and wider panAsian conferences and industry events could enhance their profile in the next 12-18 months; and how best to develop the online presence of their new Chinese operation's managing director, whether through blogs, webinars, or local video sites. Birch had failed to win the EPP bid, and Browne had confronted him about not including the firm's Beijing EPP lead on the pitch. She recalled her conversation with Birch, where he brushed off the lost bid: Look, this client trusts me 100\%. I'm not going to bring someone they don't know and spook them, or worse, have them think I can't do the job. I don't even know the EPP guys in China, and anyway, what do those guys do? I have to confess I didn't really understand that we had EPP people on the ground in Beljing separate from our small PR team there, who I knew were not up to the needs of this project. I put together my best pitch with my people, but you can't expect me to give up half my fees by handing off execution to someone else on my most important client. They decided against us. What can I say? In a followup call with Browne, a board member said, "This probably cost the firm several million dollars, never mind access to more senior global teams across this client. But Birch is a real cowboy; he operates like a free agent and is completely unaware of anything going on outside his domain." "I know he's a difficult character," countered Browne, "but he brings in millions of dollars in fees every year. There's only so much leverage I have over him. At the same time, his networks could open highly lucrative doors for our EPP and help it take off; that's how it is supposed to work." The board member had concurred. "He could always walk away, and you're right, a lot of his business would go with him." He added: You've heard me say it before, but our comp system is not set up to get you thinking "How profitable am I?" or "Can I be more efficient in my use of resources? Do I need more resources?" It's set up to have you go as hard and fast as you can after new or repeat business. It fosters individual fiefdoms among our partners, and almost completely prohibits collaboration. Who wants to split their fees? They both recalled the e-mail sent to the board by a senior partner who had been eager to shift her practice over to join EPP. She had written several months after EPP had launched, warning of the challenges: Our current compensation system makes collaboration difficult. It rewards entrepreneurialism, with no mitigating factors to encourage people to share the pie. And there are a lot of sharp elbows in our firm. We're using the same performance management tools for EPP as we've used for PR over the years, but what we do in EPP is very different. Being rewarded strictly by days of execution, as in a classic PR project, makes little sense in executive positioning, where the relationship with the client takes longer to develop and is more intimate. There aren't any good guidelines to reconcile between these two modes. The fee splits are destructive. Rather than thinking about how execution and delivery can complement the two different kinds of work, and grow the pie for everyone-the amount of discussion, iteration, contention about whether I receive 20% or 30% or 12% or 5%, is endless. The board member finished the call by saying he had heard that two of Marshall \& Gordon's top earners had recently been approached by competitors. Browne had said, "I know. Things are heating up across the industry. Firms are trying to go out and buy rolodexes. We all know our biggest earners could easily be poached or walk out the door and take their clients with them. And they know it, too." Now, after Pearce's call, Browne was acutely aware that headhunters might be circling closer than ever. Sharing Work, Splitting Fees The conflict over splitting the O/E fees raised by Birch was not a new one for Browne. Only last month, the head of her oil and gas practice, Mike Leigh, had flown up from Dallas to talk with her about the Venezuelan partner who had helped mitigate the Venezuelan oil client's challenges a year earlier. "Securing our client's trust, influencing their senior leadership to be more visible, and communicating the 'right message' during this flap was a great win for us. I know many of us are really excited about the executive positioning consulting opportunities that this project and others point to," Leigh said. "But we have to find a way to make my guy in Venezuela whole at bonus time next month: he could have tried to go it alone, but rightly recognized that he needed others' skills and experience to pull off such a big, novel assignment. He gave up a most of his execution fees to bring the Dallas team onto the project." Browne and Leigh had discussed the 10% variable compensation that could be adjusted by Leigh, as practice director, to augment his Venezuelan consultant's credits, given that the actual work was executed by the Dallas office's team. Across the firm, practice directors could augment a consultant's bonus as much as 10% as part of performance management. "It is not enough to cover what my guy in Venezuela gave up when we decided to split some of the origination credits on that job in order to get the Dallas team involved," said Leigh. Thinking back on the conversation with Leigh, Browne revisited her long-held concern about the variable 10% that PMDs could adjust at their discretion on consultants' compensation to reflect performance. She knew there were no codified standards defining how to assess behavior, or even which behaviors should be rewarded. "It feels completely arbitrary," one consultant had told her last year at bonus time. "The feeling across the firm is that practice directors use the variable amount to top up strong performers' bonuses, regardless of whether their behaviors were aligned with the firm's overarching objectives." HR Challenges Browne slowed her car as she came up on her exit; only 15 minutes and she would be home. She shifted her thoughts to the update she had received this afternoon from her head of HR, Don Karlson. Their meeting had caught her up on the status of the ongoing interviews and employee surveys she had hired a third-party firm to conduct as the first stage in assessing Marshall \& Gordon's compensation system. She had also asked Karlson to outline the new performance management tools HR was planning to implement as complements to the new compensation system. Browne knew there was skepticism across the firm. One partner had noted, "People perceive that each one of these pet projects will take money out of their pockets in the long run." Karlson launched into a familiar complaint about the challenges of getting consultants to participate. He had ranted, "It is incredibly difficult to get anyone to commit to mentoring or training. When we proposed a formal mentoring program, almost every single consultant asked, 'Will the junior consultant get a cut of my execution fees?' If they don't ask that question, they want to know what fee credit they will get for doing these non-client-related tasks. It's demoralizing, Kelly." Marshall \& Gordon's Current Compensation System Partners and principals were compensated with a combination of a salary and annual bonus. Salaries for principals in 2009 ranged from $100,000 to $150,000. The salary range for partners was $180,000 to $250,000. But as the firm's finance director noted, "It wouldn't be Marshall \& Gordon if there weren't exceptions. We have one partner at $500,000; a couple guys at $400,000; a couple of people at $350,000; some at $300,000." (Exhibit 4 shows greater detail on consultants' salary ranges.) The performance-based bonus was calculated using a two-part formula: consultants earned credits both for business originated (O) and executed (" E). The amount that the client paid Marshall \& Gordon was credited twice internally: once as O and once as E. Thus, a partner who sold a $200,000 PR project would be credited that full amount for bringing in the business even if she $200,000). When partners sold or delivered a project jointly, they negotiated between themselves how to split the O and E credits. Individual bonuses were based on each consultant's total O and E credits, and in a good year could double a high-biller's salary. When a consultant's production fell below his salary, he was considered "underwater" and therefore ineligible for bonuses. In 2005, the firm introduced a tiered system: the more credits generated by the consultant, the higher the percentage allocated to his or her bonus. The system was formulaic, as Browne explained: "The more you bring in, the higher your share." Consultants were allocated 10% for origination credits under $280,000,20% for credits between $280,000 and $560,000, and 30% for credits over $560,000. The tiers worked similarly for execution credits (refer to Exhibit 4 for detail on payout ranges). Each consultant could calculate her expected bonus based on her individual revenue reports at any point during the year. Each practice director could also increase the compensation of their practice's consultants by as much as 10% to recognize excellent performance. Browne and Karlson had struggled to define the performance parameters for this 10% bonus. Each year Browne waded through a slew of complaints from consultants who claimed that performance metrics were confusing and that their PMD's application of the 10% bonus had been arbitrary or biased. Consultants below the level of principal, and all non-consulting employees, were salaried. Typically, and informally, consultants "took care of their own support people," Browne said; they often wrote out bonus checks for their associates and assistants from their own bonuses. A Difficult Context As she pulled into her garage, Browne sat for a last quiet moment before the frenzy of getting her children to bed. The economic downturn had hit Marshall \& Gordon hard. Across the PR industry, revenues from financial services clients had dropped 40\%; the impact on Marshall \& Gordon was significant, given that 30% of its revenues came from its financial services practice. The firm had cut costs, including two rounds of layoffs in 2009, took several charges associated with the layoffs, cut all consultant salaries by 5%, and suspended all matching funds to the firm's 401(k) retirement plan in attempts to weather the challenging environment. Karlson had reminded her, "We did everything we could to cut fixed costs. But there was only so much we could do on variable costs. Employment regulations across the globe mean you can't shed jobs fast enough." Now, even as the economy edged upward, Browne and her team were keeping tight reins on spending, and Browne feared that any further cost-cutting would risk core client-service activities. Browne thought again about her stack of weekend reading. The firm had inherent challenges in building a compensation system that met the needs of both sides of the business; the current environment made designing a new system even more challenging. She knew that Marshall \& Gordon's compensation system had to change in order to motivate consultants such as Birch to alter their approach and support the firm's strategic shift. But did changing the compensation system risk alienating top performers? Given the behaviors Browne wanted to reward, what should the new compensation system look like? "Many of our consultants expect a certain level of bonus," Browne thought. "Regardless of the environment, if they delivered revenues, they expect their bonus. If they don't get it, some will walk." Exhibit 1a Marshall \& Gordon-Practices by Industry and Service Area Industry Service Area Automotive Broadcast \& Media Services Brand Experience Corporate Responsibility \& Sustainability Business Marketing Education Change and Employee Engagement Entertainment Marketing Cleantech Global Strategic Media Consumer Marketing Internal Communications Corporate and Crisis Communications Issues \& Advocacy Advertising CSR, Citizenship and Sustainability Litigation Support Design Multicultural Communications Digital Communications Rapid Response \& Recall Financial Communications Executive Positioning Financial Services Research Food and Nutrition Social Innovation-Greenhouse Government Relations Social Innovation-Planet 2050 Healthcare Visual Communications Media Youth Marketing Measurement \& Strategy Public Affairs Sports and Entertainment Technology Travel \& Lifestyle Marketing Exhibit 3 Marshall \& Gordon-Executive Positioning Practice Marshall \& Gordon's executive positioning practice provides programs and a suite of tools that leverage and effectively communicate the unique knowledge, expertise, and points of view of company executives. Our services help substantiate a company's message and brand; enrich a company's relationship with its critical stakeholders (including key customers and prospects, opinion leaders, recruits, and internal audiences); improve visibility and stature of the CEO and executive team; and influence the industry agenda at all levels. Our consultants work with CEOs and other C-suite executives to create a personal communications strategy that capitalize on personal strengths and market opportunities to develop an influential yet distinctly individual profile. Our EPP help CEOs communicate across a full spectrum of stakeholders - including investors, employees, regulators, analysts, the media, and the firm's customers-all of whom demand transparency and accountability on corporate strategy and governance issues. Our clients are then able to position their knowledge and leadership on industryleading topics and matters of national important to advance their company's strategy and enhance its brand. Building the CEO Voice and Visibility: A multistage model helps new CEOs manage the successive stages of their tenure, from their first 100 days to their last 100 hours. Marshall \& Gordon provides strategic counseling on how top CEOs manage successful tenures and build legacies. Our model provides a comprehensive understanding of the most important drivers of CEO and corporate reputation. Specialty Services include: - The New CEO (including Marshall \& Gordon's 100-Day Plan coaching) - CEO Vision and Strategy Tours - Senior Leader Coaching and Training - Message Development and Media Briefings - Recommendation for Board Opportunities - Executive Transition Programs - Reputation Audits Conference and Speaking Strategies: Marshall \& Gordon's research helps identify strategic conferences and other speaking opportunities for CEOs and senior executives; who participates at these events and why; and how companies can best leverage their conference participation. Executive Thought-Leadership Services: Suite of services that helps companies differentiate their organization's leadership across important outlets including media, industry regulation, and policy, including speechwriting, bylined articles, editorials, and blogs. Source: Adapted from company documents. 411-038 Marshall \& Gordon: Designing an Effective Compensation System (A) Exhibit 4 Marshall \& Gordon-Salary Ranges and Bonus Tiers for PR Services Source: Adapted from company documents. Sources of Energy for Organizational Change Coalesced Authority, Power and Influence Lifecycle of an Organization Marshall \& Gordon: Designing an Effective Compensation System (A) Kelly Browne, CEO of leading public relations firm Marshall \& Gordon, sat in her corner office in the company's New York City headquarters. It was late on a Friday evening in March 2011, and Browne was trying to finish up her day. She still needed to get through a stack of paperwork and unanswered e-mails and put the final touches on a report she would give to the firm's executive committee early Monday morning. A pile of interview transcripts sat ready for her to take home to read on the weekend. They represented six weeks of data-gathering by external consultants hired as the first phase of overhauling Marshall \& Gordon's compensation system. Browne had scheduled a mid-April off-site with the executive committee, practice and regional heads, and the firm's entire HR team to plan the launch of a firmwide performance management system, part of which included the design of a new compensation system. She had less than a month to prepare for what she knew would be several long days of contentious discussions. Her phone rang, and recognizing the caller ID, she picked up. "Hi. I know it's late. I won't be home in time for dinner. I'm sorry." She hung up and looked over the unread e-mails in her inbox: several updates on recent lateral hires; a long string about an important pitch in China that had failed; several client and partner e-mails; and the one she dreaded most-an update from her head of HR on the compensation system review, with interviews and data. The phone rang again; she sighed and picked up without checking who the caller was. "Hey Kelly, Matt Pearce here. Thought I might catch you at the office." It was an old classmate who ran a large global executive search firm. "I wanted to congratulate you on the recent Wall Street Journal coverage. Sounds like M\&G is going gangbusters. I hope we can help you as you fill out some of your consultancy gaps." Browne smiled. The previous week, the Wall Street Journal covered Marshall \& Gordon's year-old strategy shift, which had entailed significant investment in building the firm's fledgling executive positioning business to complement its 125-year-old global public relations (PR) business. "It's pretty exciting Matt, thanks. I know you can appreciate the challenges. Our firms face similar issues in cross-selling new services and getting partners to collaborate. But I didn't realize just how hard it would be. PR and executive positioning are different enough that it's tough to get professionals from each side even to understand each other's business, let alone trust someone else enough to introduce them to clients." Pearce agreed: It's hard. Some of my biggest producers were completely alienated when we added human capital consulting two years ago and asked them to include newcomer consultants on their client pitches. And these are powerful guys. They are the linchpin to some important relationships for our firm. But I suspect the "silo mentality" is even worse in your firm, given how you pay professionals for individual performance. Browne ignored the jab at her firm's incentive system. She knew rumors of the compensation review were already circulating in the PR market, and Pearce was fishing for more information. "The good news is that my boss is 100% behind me," said Browne, and briefly relayed how Marshall \& Gordon's new offering dovetailed with her parent company's strategy to continue shifting the company's business into more upscale sectors. The two friends caught up for a few minutes, but Browne was distracted by the late hour and thoughts of her family at home. As she finished the call, she packed up her laptop, grabbed the stack of transcripts, and headed to her car. Public Relations Industry Overview PR firms provided a range of services aimed at managing, protecting, and enhancing a client's reputation, brands, and products. One industry executive characterized traditional PR saying, "Historically, PR was about news clips-how many articles you could place about your client in the top-tier publications. The PR consultant's job was to create and issue press releases and use their connections with journalists to place the story as well as possible. The job's changed considerably, but there's still a perception that clients care about clips." Another PR industry insider concurred: Clients used to buy from a PR firm because of its relationships with journalists. PR has become a long-term program to build reputation for clients across a wide range of stakeholders - not just media, but also investors, analysts, employees, customers, politicians, and trade and regulatory bodies. Efforts can't just end after you place the WSJ clip. Now we are working to add value in more strategic ways such as helping them develop and implement a credible investment case and brand story. Since the 1990s, PR firms had been adding services to their portfolios that allowed them to develop a broader, perhaps more strategic, offering to their clients. By 2011, about three-quarters of PR agencies provided a full range of services, including media and investor relations, crisis management, lobbying, event management, and fundraising. In 2010, with combined annual revenue of about $9 billion globally, the industry was fragmented: the top 50 companies accounted for about 35% of industry revenue. 1 Business was highly competitive and small, local agencies could often successfully steal business from larger PR agencies. 2 Historically, firms had contracted with PR agencies for individual engagements or campaigns, which were bid at a rate that included a project fee covering resources used across the agency's offices. As with other professional services firms, since 2007-2008, some clients had sought to contract with their PR agency for a flat "retainer" fee to cover a range of PR services over time. Traditional PR consultants developed and managed relationships across multiple constituents: their client company (both management and employees), their client company's customers, local communities, shareholders and investors, and other institutions. Many consultants were fiercely territorial and guarded their relationships closely. Only one or two firms relied on team-based selling and execution. Most PR work was accomplished by seasoned professionals who developed their own reputation among clients and used junior, tactical teams only for background support. While many firms suffered as clients slashed PR budgets during the 2008-2009 recession, the top five firms chased after top-performing consultants, luring them with multiyear guarantees. 3 As competition for talent intensified, the industry was increasingly characterized by consultants' lack of loyalty to their employers, with consultants moving between competing firms and often taking clients with them. By 2010, several additional industry trends were noticeable. Firms were consolidating through mergers and acquisitions; firms were working to develop global competencies and expertise to serve multinational clients; and online tools, especially social media (e.g., podcasts, blogs, viral videos, social network sites), were becoming more powerful. Some firms were also finding that "green marketing" offered increasing opportunities for PR agencies to expand business with existing clients and acquire new clients. 4 Recently, several top-tier firms had begun diversifying into other extensions of PR services such as litigation support and reputation management consulting. The industry expected 2\%-5\% annual growth in 2011, with projected single-digit growth through 2015. Marshall \& Gordon Firm History Marshall \& Gordon was born out of a merger of Marshall, a small public relations firm founded in 1904 by James Marshall in Atlanta, and Gordon Partners, the in-house PR and communications shop for Ajax Oil Company, founded by Gerald Gordon in 1875 and based in New Orleans. The firm made the early strategic decision to focus on communications, brands, and product portfolios. In the mid1950s, it launched an Australian office with satellites in Southeast Asia and soon moved its headquarters to New York. In 1962, the firm was acquired by the holding group PTG, a worldwide media conglomerate with a large portfolio of leading advertising, PR, and media companies. Entities in the PTG family operated as separate companies, with their own P\&Ls and management structures. PTG went public in 1984. By 1999, Marshall \& Gordon was a major international player in the PR sector. Through organic growth and acquisitions, the firm had offices across the U.S., Asia, Europe, and in South Africa. Browne was named CEO in 2005, after many years as a top-performing consultant. A senior partner noted: She was a shoo-in for leadership, a proven performer renowned for her implementation of new media tools that helped establish us as the innovative partner in PR over the past decade. She is immensely charismatic; clients love her. She is a strong mentor and a highly successful recruiter. She helped build the initial risk-assessment team with three significant lateral hires at a time when the firm wasn't even looking in this direction. In late 2008, an important client, a South American nationalized oil company, experienced negative reactions from a slew of anti-Western comments made by the country's minister of trade, who was also chairman of the company's board. Marshall \& Gordon managed the media firestorm in the U.S. and across Western Europe and helped reposition the firm's senior leadership to counteract the effects of the minister's comments. The work had meant long days for the PR firm's Venezuela and Dallas teams, leveraging their relationships with the oil company's senior leadership to raise the executives' profiles, and position the profiles more specifically to benefit the firm. This work included building an approachable online presence for the company's new CEO, bringing him more prominently into the public eye by placing him at several key industry events, and brokering a headline-breaking partnership between the oil company and a highly respected Amazon Basin conservation organization. In the wake of the firm's success at turning popular opinion to the benefit of the oil company's senior leadership, Browne and her leadership team saw a new opportunity and formally launched an executive positioning practice (EPP) in early 2009. By 2010, the firm's expertise and client reach stretched across such diverse sectors as airlines, consumer goods, financial services, healthcare and biotechnology, education, oil, and mining. Marshall \& Gordon had also been early to leverage the Internet and, more recently, social networking tools to complement its PR services. In 2010, the firm reported revenues of $330 million. (Exhibits 1a and 1b provide more information on practices and regions covered; Exhibit 2 shows select financial information; and Exhibit 3 gives details on the firm's executive positioning services.) Organization and Project Execution By 2010, Marshall \& Gordon had a network of 48 worldwide offices on six continents with about 1,500 employees. The firm had 21 practice areas and numerous specialty services, along with 256 partners, 105 principals, and 88 senior associates. Support staff included research associates and executive assistants. Corporate functions, such as finance and HR, were centralized at headquarters. Practices were the primary organizing dimension at the firm. Each practice had its own revenue and business development targets and was led by a practice managing director (PMD). Regions were led by one or more regional managing directors (RMD), who were responsible for offices and personnel administration, and coordinated with PMDs. Both sets of managing directors reported to a chief operating officer who served on Marshall \& Gordon's executive committee along with Browne, the firm's chief financial officer, the head of human resources, the general counsel, and chief marketing officer. This executive committee in turn reported to the PTG board. Over one-third of the firm's top-performing partners and principals had started with the firm as interns or entry-level associates. Associates were expected to move into senior associate roles within two to three years; senior associates could become principals within five to six years. Promotion from principal to partner could take anywhere from three to six years, and was based primarily on a consultant's revenues billed and/or development of new (significant) client relationships. The firm had retained its strong individualistic culture as it acquired other PR firms and integrated new partners, principals, and associates into the Marshall \& Gordon family. Each project was individually led by a partner or principal, who put together a tactical team of researchers and (senior) associates depending on the nature and size of the project. Principals generally led projects that were smaller and/or for less prestigious clients, and they worked under partners to handle day-to-day project management for higher-profile engagements. As principals gained experience as project leaders, acquired strong expertise in the relevant sector, or developed close relationships with the client, they became increasingly independent. In terms of credit, fees for projects were "double-counted" for origination and execution (O/E) : the partner originating the work was credited for 100% of the project, as was the partner (or principal) leading the team to execute the project. Issues on Browne's Mind As she headed to her car for the hour commute home, Browne thought over the e-mails she had just reviewed. One was from a San Francisco-based partner, Janice Lu, who handled several important biotechnology clients under the firm's Healthcare practice and served as the managing director for the firm's North America-West region. She had sent a long e-mail railing against the firm's decision to make two lateral hires, one as partner in the Healthcare practice, and one into the EPP. Lu had had to accommodate both hires in the San Francisco office. She wrote: I am not trying to create waves, but I am shocked at the guarantees we've signed these two people on with! I see no evidence of either of them trying to develop new clients, or even coordinate with the biotech PR work we're running out of the office. They are not mentoring any of the associates. They're executing on business they booked before joining us, and that's pretty much it. They know they don't have to worry about hitting any numbers this year or next year either-because they won't be assessed for bonuses until 2013, when their guarantee expires. This feels outrageous to me. Am I really to believe we couldn't have lured them in on the salary and bonus scale the rest of us live with? Browne knew her response by heart: The industry had become increasingly competitive, and Marshall \& Gordon and its competitors looked to new venues for experienced talent with burgeoning rolodexes. EPP required people who could network and interact at the highest levels in corporate and public life, connecting credibly not only with CEOs but with the variety of stakeholders those CEOs cared about, including Wall Street analysts, activist shareholders, politicians, and the like. Such consultants didn't come cheap. But the newcomers' compensation packages, including salary and a guaranteed bonus, had been an ongoing source of tension inside the firm. Browne also suspected that Lu's anger stemmed partially from her resentment at having been given the management position without additional compensation for her increased responsibilities. Expanding Marshall \& Gordon's Services: Executive Positioning A handful of long-time Marshall \& Gordon consultants had both the interest and expertise to shift their specialty to the EPP, and the firm had brought in several prominent management consultants and lawyers with niche expertise in succession management, leadership, and positioning. Browne thought back to the original decision to launch the EPP group: A couple of clients had come to us informally, looking for guidance on enhancing the profile of their C-level executives. One of our prominent client's chief marketing officer had asked, "We have a compelling new strategy that our new CEO is driving. How can we get her voice heard, both internally and externally?" We had plenty of expertise when it came to brand reputation but at the level of people's positioning, it's much more nuanced. We recognized this work could take us into the heart of a client's senior executive teams. When we helped them on this front, the value to them was immeasurable. They were then bound to us in ways we couldn't develop through our typical PR engagements where we focused on sound bites or announcements. Browne recalled her mentor's reactions when the firm made the EPP announcement. Although he was about to retire, he had been extremely enthusiastic about the new direction. He told Browne at the time, "This shift has been a long time coming. Ever since I came into the business in 1983, I've longed for a way to truly differentiate ourselves from competitors. This gives us that opportunity." But he had also voiced concerns: I worry about how different these two kinds of work are. PR, the way Marshall \& Gordon practices it, is highly dependent on relationships, networking - for some of us, it's what I call "the schmooze factor." The executive positioning work requires a different person than PR, someone who has a completely different set of skills. The positioning work relies on more intimate relationships with the C-suite and involves strategic thinking, extensive interviewing, and other types of analysis. We'll need consultants with deep analytic skills, great facility with digital media, as well as close familiarity with leadership issues, government policy and regulation, and other trends. It will call on much more effective team-based work and will mean building completely different types of relationships with these clients. The trick is to persuade clients that their senior leadership's positioning strategically enhances their company's overall reputation. But execs often have to dip their toes in the water a few times before they see the value of positioning services. So to build EPP, I think it will take lots of small investments to get the business, which means that our traditional PR consultants have to trust their EPP counterparts and help them build the critical relationships inside their clients. Despite her reservations, Browne was confident that the new strategy was the right direction for the firm, particularly because the parent company was targeting more upscale, more profitable client relationships. Just last month in London, Browne had met with the CEO of a FTSE 100 company who said he was delighted that Marshall \& Gordon had helped re-position his consumer goods company as a leading-edge player on environmental issues. The EPP partner was becoming a trusted advisor to the CEO, and Browne knew that relationship had spawned traditional PR work for the firm's Hong Kong and Toronto offices, which had never served that client before. How was Browne to convince more partners to open their existing clients to EPP? One Firm, Two Practices Lu's e-mail had coincided with another, much bigger question that Browne had grappled with. Over the phone earlier in the week, a board member had debriefed Browne about the botched pitch to a large software company's China office. The client, a Silicon Valley giant, had been a longstanding client of Sean Birch, head of Marshall \& Gordon's software practice. Birch had spent decades in the firm's traditional PR business and was its top performer in terms of O /E fees. He had helped the client from its earliest days as a start-up and watched it grow to Google size. Recently the client had faced criticism in its newest (and largest) market-China. The firm had responded by setting up a separate Chinese operation and was in the midst of hiring top Chinese executives to run the subsidiary. The client had approached Birch for help with three things: identifying ways to position their new Chinese leadership in the local market, including which university they might partner with in building a new research lab; which Chinese and wider panAsian conferences and industry events could enhance their profile in the next 12-18 months; and how best to develop the online presence of their new Chinese operation's managing director, whether through blogs, webinars, or local video sites. Birch had failed to win the EPP bid, and Browne had confronted him about not including the firm's Beijing EPP lead on the pitch. She recalled her conversation with Birch, where he brushed off the lost bid: Look, this client trusts me 100\%. I'm not going to bring someone they don't know and spook them, or worse, have them think I can't do the job. I don't even know the EPP guys in China, and anyway, what do those guys do? I have to confess I didn't really understand that we had EPP people on the ground in Beljing separate from our small PR team there, who I knew were not up to the needs of this project. I put together my best pitch with my people, but you can't expect me to give up half my fees by handing off execution to someone else on my most important client. They decided against us. What can I say? In a followup call with Browne, a board member said, "This probably cost the firm several million dollars, never mind access to more senior global teams across this client. But Birch is a real cowboy; he operates like a free agent and is completely unaware of anything going on outside his domain." "I know he's a difficult character," countered Browne, "but he brings in millions of dollars in fees every year. There's only so much leverage I have over him. At the same time, his networks could open highly lucrative doors for our EPP and help it take off; that's how it is supposed to work." The board member had concurred. "He could always walk away, and you're right, a lot of his business would go with him." He added: You've heard me say it before, but our comp system is not set up to get you thinking "How profitable am I?" or "Can I be more efficient in my use of resources? Do I need more resources?" It's set up to have you go as hard and fast as you can after new or repeat business. It fosters individual fiefdoms among our partners, and almost completely prohibits collaboration. Who wants to split their fees? They both recalled the e-mail sent to the board by a senior partner who had been eager to shift her practice over to join EPP. She had written several months after EPP had launched, warning of the challenges: Our current compensation system makes collaboration difficult. It rewards entrepreneurialism, with no mitigating factors to encourage people to share the pie. And there are a lot of sharp elbows in our firm. We're using the same performance management tools for EPP as we've used for PR over the years, but what we do in EPP is very different. Being rewarded strictly by days of execution, as in a classic PR project, makes little sense in executive positioning, where the relationship with the client takes longer to develop and is more intimate. There aren't any good guidelines to reconcile between these two modes. The fee splits are destructive. Rather than thinking about how execution and delivery can complement the two different kinds of work, and grow the pie for everyone-the amount of discussion, iteration, contention about whether I receive 20% or 30% or 12% or 5%, is endless. The board member finished the call by saying he had heard that two of Marshall \& Gordon's top earners had recently been approached by competitors. Browne had said, "I know. Things are heating up across the industry. Firms are trying to go out and buy rolodexes. We all know our biggest earners could easily be poached or walk out the door and take their clients with them. And they know it, too." Now, after Pearce's call, Browne was acutely aware that headhunters might be circling closer than ever. Sharing Work, Splitting Fees The conflict ove