Thoughts and Insights on Business Excellence in the Energy and Heavy Process Industries
There have been many initiatives taken on by the majors in recent years. As margins eroded and began impacting overall performance, the imperative to get “fit” has finally become reality in the inner sanctum of the C-suite.
In our last posting we introduced the topic of incentives and consulting agreements by asking the question: It is possible to have so much skin in the game that the consultants start taking over how the client operation is run? We also described how a fees for performance arrangement differs from a fees at risk structure, highlighting the risk of driving unintended results.
In 2004, Forbes ran a story that talked about how consultants, keen to demonstrate their commitment to delivering results, were increasingly electing to enter into fee arrangements tied to performance. These typically involved setting aside a portion of the overall fees and tying their payment to the achievement of stated benefits for the client, and even providing for “gain share” arrangement for sharing in a portion of results delivered over the target.