Egon Zehnder

<article-ideainbrief class="article-ideainbrief">
 <h4 class="ideainbrief-title">The Idea in Brief</h4>
 <div class="ideainbrief-contents">
  <p>Consider this enviable track record: Annual profit expansion for 40 consecutive years; 60<span class="bodysmallcaps">%</span> of business from repeat customers; and yearly employee turnover of 2<span class="bodysmallcaps">%</span>—in an industry averaging 30<span class="bodysmallcaps">%</span>.</p>
  <p>How does the executive search firm Egon Zehnder International score these remarkable successes? It uses a surprisingly simple, old-fashioned compensation system that attracts a rare breed of top-notch consultants—long-term team players who value clients and the whole organization more than self-aggrandizement.</p>
  <p>The secret? Reward people for seniority and companywide results—not for individual performance.</p>
  <p>The Idea in Practice</p>
  <h2>A Seniority-Based System</h2>
  <p>For EZI partners, compensation takes three forms:</p>
  <ul>
   <li>Base salary</li>
  </ul>
  <ul>
   <li>Equal number of shares in the company’s equity—regardless of tenure. But because 10<span class="bodysmallcaps">%</span>–20<span class="bodysmallcaps">%</span> of profits go back into EZI, staying for five years can <em>double</em> partners’ share value.</li>
  </ul>
  <ul>
   <li>Profit shares—based solely on length of tenure. A 15-year partner receives 15 times more than a 1-year partner.</li>
  </ul>
  <p>For EZI non-partners, rewards take two forms:</p>
  <ul>
   <li>Base salary</li>
  </ul>
  <ul>
   <li>Annual bonus based on their (1) support of colleagues and (2) enhancement of EZI’s overall reputation (e.g., by publishing an article)</li>
  </ul>
  <h2>The Benefits</h2>
  <p>Easy to administer, this system also lets firms build the human capital that drives success:</p>
  <ul>
   <li>It attracts consultants who <strong>value the firm’s performance</strong> over their own billing totals. Rather than hoard information to boost individual billing, they collaborate to help their firm best serve clients.</li>
  </ul>
  <p><span style="idea-in-practice-example"><span style="idea-in-practice-example-header">Example:&nbsp;</span> </span></p>
  <p>A German client seeking a manager for its Bavarian company first visited a partner in EZI’s Zurich office with whom he had worked before. But that partner referred him to a Munich partner who knew the industry and Bavaria’s idiosyncrasies better. Result? A successful match—and devoted client. </p>
  <ul>
   <li>It attracts trustworthy, humble people who <strong>want to stay</strong>. Consultants and partners build vast networks of contacts and sharpen their intuition—both critical to success in their people-intensive profession.</li>
  </ul>
  <ul>
   <li><strong>Everyone wins</strong>—clients, the firm, and individual consultants. As employees increase the firm’s success through long-term service, they also build knowledge that benefits clients—and increases their own compensation.</li>
  </ul>
  <h2>Hiring and Promoting the Best</h2>
  <p>For this system to work, firms must hire and promote the right kind of people. EZI’s approach?</p>
  <ul>
   <li><strong>Interview extensively.</strong> Twenty-five to thirty EZI consultants—including the chairman—interview every candidate. Candidates learn that all EZI employees share the same values and assumptions—which newcomers must also share to succeed there. If any EZI interviewer expresses serious reservations about a candidate, the firm doesn’t make an offer.</li>
  </ul>
  <ul>
   <li><strong>Be blunt about compensation.</strong> EZI founder Egon Zehnder asks candidates how they’d feel if they generated the firm’s highest billings and 60<span class="bodysmallcaps">%</span> of their office’s profits—but didn’t get extra compensation. If they hedge, he recommends <em>not</em> joining EZI.</li>
  </ul>
  <ul>
   <li><strong>Promote wisely.</strong> EZI consultants work for at least five years before being considered for partnership. The firm evaluates their collaboration, honesty, and entrepreneurial spirit. This difficult, expensive process pays off: Most partners stay their entire careers, returning EZI’s investment many times.</li>
  </ul>
 </div>
</article-ideainbrief><p>There have been many changes in professional services since the day I first set up shop in 1964—not the least of which has been a pronounced shift in the way professionals pay themselves. When I started, compensation was strongly tied to seniority. After all, seniority was a proxy for experience. Today, most consulting firms, law firms, and so forth consider seniority irrelevant—and occasionally something much worse. They believe pay should be based on performance and, more specifically, individual performance. That’s why at most professional firms, people are paid according to the size of their client billings and how good they are at bringing in new clients. Indeed, firms invest considerable time and effort to measure those results precisely.</p>

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A Simpler Way to Pay

Rewarding individual performance is the way of the business world, but there are rare exceptions. At executive search firm Egon Zehnder International, seniority and companywide results determine pay. The company’s founder explains how this unconventional compensation system works—and why.

A Simpler Way to Pay

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