Should You be Using Utilization Rate as a Consultant Compensation Measure?

Michael Calkins

Updated: November 7, 2023
July 5, 2023
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Consultant compensation utilization rate
Consultant compensation utilization rate

I recently hosted a webinar where I posed the question — does including utilization rate in a consultant’s compensation plan truly support the goals of a service-based company?

consultant compensation

I understand that having utilization in consultant compensation plans is rich in tradition, and there is a belief that doing so contributes to an organization’s long-term success. Often, this inclusion of utilization rates is a major determinant in the compensation plan. It’s a metric that is easily identifiable, computable, and comparable, but does the presence of utilization in consultant bonus plans best serve a consulting organization? 

From the consultant’s point of view, I never remember one of my managers asking me if I wanted to take on the harder three-month project where they really needed my skills or the nice six-month engagement that was starting a week later. Or, having a choice of staying billable or helping out for a couple of weeks on a business development opportunity. This was very frustrating for me as it impacted my compensation, yet there was little I could do. 

Managers realize that they often have to balance the needs of business with available resources and their skills, and giving choices to assignments is not always an easy thing to provide. (Helpful tip: take advantage of resource management software! It gives you full visibility and control over your staff and project resources.) Therefore, managers should develop compensation plans where the consultant owns their decisions and their actions. 

Consultant utilization resides with management

Let it be said that consultant utilization is a great business metric and driver. It should indeed be measured, and no doubt be tied to organizational compensation plans. The owner of such a metric is where compensation bonus plans for it should reside, and this is with the organization’s management team. The management team is where staffing decisions are made, where strategic plans are developed and deployed, and where ultimately, utilization responsibility must rest.

The effect on company culture
Having a consultant’s pay directly related to their utilization also affects an organization’s culture. I had a manager who once said, “Be careful when doing anything that affects one’s compensation. Remember that compensation drives behavior.” This isn’t to say that it is the only thing that affects one’s behavior, but one cannot deny that it certainly plays a role.

Therefore, when utilization is tied to compensation, a consequence to the organization might be that people will look out for their own best interests and not those of the organization. How might this affect skill sharing? Well, why would a consultant want to lower his or her own value to being billable? Intellectual property sharing? They’d rather keep hold on any job security that is found. 

Be careful when doing anything that affects one’s compensation. Remember that compensation drives behavior.

I don’t believe these are the directives that managers really want to use to define the culture of their service organization. Nor do I believe that having consultants solely focused on their own utilization is good for the growth of the business. So what are some other approaches organizational management can take to compensate consultants and get the same ‘desired’ result of everyone looking out for the organization’s best interest?

Six facets that should be part of consultant bonuses

1. How are you making others around you better?

Granted, this one is a bit trickier to measure and base pay against, but it can and should be done. What better cultural value is there to an organization than one of sharing skills and knowledge that ultimately makes every single person better? This reinforces the notion that every single member of an organization, from the most senior to the recent college graduate, has something to offer.  

A quick survey or appraisal review where each person lists three to five of the most helpful individuals to them, alongside a summary of what they did to help make others better, will give you specifics against which you can compensate.

2. Do your clients recognize your work?

This is not the same as “Are you doing your job?”, as that is what one gets paid for and should not be part of an employee’s bonus plan. What I am looking for here are those emails and verbal recognition.

You want consultants to keep themselves billable, and I’m not sure that anything does that better than evidence of them producing high-quality deliverables and bringing “value-add” that are recognized by your clients.

3. What have you contributed to the organization’s Intellectual Property (IP)?

If your organization has a knowledge base or space in which to share collateral, this one is a must. Determine a number of collateral elements that each consultant should contribute to or add, and measure their success in doing so. 

Along with the sharing of skills, compensation against this objective fosters consultant growth and organizational effectiveness within your projects. Both are likely to help consultants stay billable.

4. What opportunities are you bringing to sales and the management team?

We all know that the best way to grow one’s business is by selling to the customers they already have today. Yet companies may not be motivating their consulting staff in cultivating their client relationships. Most consultants don’t see themselves as business development resources or really don’t have the desire to get involved in sales. This means that if a manager is preaching that “everyone should always be selling,” they might be missing the mark — and account for growth opportunities. 

I believe that better results would be achieved if consultants had a bonus plan where they were to identify client pain points and who might own those pains. While more junior staff might have to identify only one or two in a year, senior resources should be on the hunt for three to five opportunities. This should find an organization an increase in new opportunities to grow your existing accounts. The key here is this is a different focus which removes being a salesperson from the consultant’s frame of reference. What better way to grow a business in a more positive and culture-friendly environment?

5. Are your timesheets, expenses, and status reports always submitted correctly and on time?

Being a manager often means chasing down employees to get them to complete timesheets, expense reports, and status reports. There are certainly better things to do. Start driving the behavior of having these items completed on time by adding them to the bonus plan. Yes, I know this should not have to spell out since getting it done is part of a consultant’s job, but is that approach working? If you’re having an issue getting reports in on time, this is one technique where you’ll see compensation quickly drive the required behavior. 

6. Have you published articles, become active on blogs, or presented?

Instead of having a consultant focused on maintaining their own utilization, why not get them focused on increasing the utilization and growth of your organization? Deploy a compensation plan which rewards one for getting published, writing articles on LinkedIn, being active on business-related blogs, or presenting at select conferences and events. By building a plan that correlates publication and other activities at different levels of prestige and value, and a corresponding monetary amount, a clear path is set for consultants to become active marketing representatives for your company.

Are you with me?

The options I’ve presented may take time to incorporate into a compensation plan and an organization’s culture, but once in place, they will give you a new way of incentivizing your consultants. If the compensation plan has not been visited in quite some time, why not take a fresh approach and add some of these effective tools? These ideas will help foster a positive organizational culture, find happier clients, and increase the utilization rate of the consultants. Now, how would that contribute to one’s organization’s long-term success?

During the webinar, I went into more detail on how to apply these 6 facets to your organization using a compensation template. Watch the webinar and grab the free template with the link below! 

What I covered in depth during the webinar:

  • Why rewarding utilization might be harmful to the goals of your company’s culture
  • What to consider for consultant’s compensation plans. 
  • New model of a plan that supports organizational growth
  • Provided a spreadsheet template for your company to test out
utilization rates for consultant compensation

One thing that I have learned is that just as accountants use financial systems, product managers use warehouse and distribution systems, and taxi companies have a system to dispatch their cabs, service organizations must also have in place a system to run their business. 

If you are still running your service business on spreadsheets and/or a hodgepodge of systems not designed for running a service organization, then it may be time to learn more about Professional Services Automation (PSA) software as a solution. Contact our team by emailing marketing@bigtime.net or requesting a free consultation below. 

Consultant Compensation Measure
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