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The short answer to your first question regarding receiving a kick-back is no and to your second question as to why we may not use saved budget is “it depends.”
To provide some additional context.
1. Large partnerships such as B4 do not run like franchises, meaning that as individuals we don’t pay a certain % in but than keep the rest for ourselves based on our individual book of business. We run like corporations - all the revenue goes into a pool and after we pay our liabilities and reinvest into the business, the remaining money is shared across partners based on whether they met their individual goals which vary; pretty much the same process you go through. In other words, lets say I have a $10m book of business. I can’t use that number to extrapolate what I will make that year; that would depend on how that number aligns to my individual goal for the year as well as the overall performance of the firm and my service line. So basically, partners share risk and reward.
2. Just because the project is under budget doesn’t mean it is more profitable. You should take an engagement economics class to understand why that is. The better evaluation criteria is whether the project will exceed the planned margin, which in turn will result in a write up to planned revenue. The margin, which drives our profitability is basically calculated using the leverage model, the mix of resources and their costs as well as what the client will pay for our work. Generally speaking, I am very expensive to the firm cost-wise, so my margin individually is not good; the firm makes big $ when they bill me out, but most of that goes to cover my cost. Let’s say you’re a senior; we tend to make a lot more money from you as it compares to your cost. Anyway, because of the above, I could still be under budget based on the client will pay but make less money for the firm. For example, if you had let’s say you agreed to deliver 2 hours of services to the client for $200 total. The plan was for you to do 1 hour and for me to do 1 hour. Let say I did both hours. Even though we are on budget from client’s standpoint, I have made less profit than I planed to make and will actually be taking a write off.
3. So on to your second question as to why if we are under budget, I may choose not to invest into bringing another resource:
a. As I described in 2, because even though we maybe under budget from client’s standpoint, I may actually be taking a write off which means I have no money left to reinvest into that particular project, in fact in firm’s eyes, I underdelivered and taking money away from they thought we’d make.
b. But lets say, I am under budget and sitting on a write up. It could also be because we are nearing quarter or year end and my practice is behind plan and this additional revenue will help us reach that goal, which is good for everyone as that generally means our pool of comp will be bigger for everyone because we’ve met our goal. So I could be saving it for that.
c. Similar to b, it could be to help the account meet the goal.
d. It could be because I had a big write off on another project and this write up would help me balance it out.
e. It could be driven by a client - maybe they don’t want anyone else on the team or don’t like being used to train new people.
f. It could be because I haven’t thought about using the savings as investment to develop a new hire and no one has brought it up to my attention and if they did, I’d be all for it.
g. It could be because I’m not a good partner and don’t give a damn about developing our people.
Thankful
Our partners get upside for being under budget but it isn’t symmetrical with the downside for being over budget. The incentives are set up to encourage partners to invest the remaining budget in over-delivering for clients
I'm genuinely curious on why some leaders are not willing to invest the remaining budget to onboarding a new hire so we can keep training people
At our firm, they’re able to rollover these gains to projects that they may have losses for during the year. Also, they can pocket it into their practice development budget from what I’ve heard
So this isn’t actually the case. You can use the positive variance (gain) to offset the negative variance (loss) to provide a net neutral impact on partner revenue. However, it’s still a gain and a loss.
And, no, we don’t get to deposit any part of it into our personal accounts. The money is the partnership’s money despite who sold the work or who delivered it
It’s called additional margin and we’re measured on it.
Unfortunately not and similarly if you take a loss they don’t take it from your paycheck. There are thousands of projects going on and the goal is to even out amongst them all.
This conversation isn’t that helpful without knowing what firm people are talking about
Sounds like EY’s