Winning Business at Russell Reynolds (A)

In an effort to make compensation drive collaboration, Russell Reynolds Associates’ (RRA) CEO Clarke Murphy sought to re-engineer the bonus system for his executive search consultants in 2016. As his HR analytics guru, Kelly Smith, points out, that risks upsetting–and maybe even losing–some of the “big billers” (rainmakers) who were heavily rewarded under the current system that motivated individual, ‘entrepreneurial’ efforts to win business. Frustrated by the current system’s shortcomings, including failing to provide clients with the teams they needed for increasingly advisory work and affording junior consultants an opportunity to adequately apprentice, Murphy was worried that the current compensation system was holding RRA back from executing on his growth strategy intended to help RRA–a top 5 search firm–recapture market share lost to its competitors since the great recession. He had tried many attempts, over multiple years, to change the culture through other means, but only with tepid success. Now he had to decide whether to pull the trigger on a large-scale effort to adjust RRA’s discretionary bonus system after hearing concern–and even anger–over the proposal from some of his top 20 consultants.

To permit students to analyze the situation, they have access to detailed, real performance and compensation data for all RRA consultants in 2015 (in the supplementary (C) case spreadsheet), along with the modeling RRA did to forecast the effect of the compensation system changes on each person. Students can therefore analyze how a more collaborative approach to compensation might positively impact some consultants and adversely impact others, assessing the benefits and risks of the dislocation.

By asking students to decide whether Murphy should move forward with the new compensation system, or whether an alternative might be better, students will wrestle with the role of compensation systems in driving intended behaviors, such as collaboration, and thus in supporting or warping organizational culture, performance, and growth. By analyzing the dislocation to employees’ variable compensation due to a change, students will learn the challenges of changing and calibrating compensation systems. Finally, by exposing students to the various tradeoffs involved in designing a compensation system and the “zero sum” nature of their implications, students will internalize the complexity involved in attempting to drive organizational change through changes to a compensation system (i.e., “align incentives” is not as easy to do as it is to say).

For faculty members seeking to expose students to the internal functioning of professional services firms (and/or specifically executive search firms), the case context permits an uncharacteristically transparent look inside one firm, although the lessons about compensation of the case discussion extend to organizations more generally.

The (A) case describes the dilemma faced by the firm and its CEO in 2015, and it concludes by asking students to make a decision about RRA’s compensation system design going forward. The (B) case describes the decision the firm made, how the changes were communicated and rolled out, the impacts (both intended and unintended) on consultant behavior and results, and reflections on what worked and didn’t work (updated as of 2021). The (C) case supplement is a spreadsheet that provides real performance and compensation data for all ~350 RRA consultants at the time the decision was being made (in 2015), and comparable performance and compensation data for those consultants in 2018 (to pair with the (B) case) is available to faculty separately as part of the Teaching Note.