When it Comes to Compensation, There's No Right Way to Do the Wrong Thing

The year is 1537. You’re a physician for King Henry VIII and you’re attending an annual conference of royal physicians in Florence, Italy. The theme of the conference? No surprise to those attending, the entire conference is devoted to the leading medical practice of the day: bloodletting. After all, every knowledgeable doctor since 1,000 B.C. has prescribed bloodletting as the main treatment for virtually every serious disease.At the conference, you have your choice of three leading-edge breakout sessions:* Breakout Session #1: The Best Places to Cut* Breakout Session #2: How Much Blood is Enough?* Breakout Session #3: Latest Improvements in the LancetBy attending these sessions, conferring with other doctors, and reading the latest papers you would get better and better at doing the wrong thing. You would be consistently improving your practices, only you would be practicing in what amounts to the wrong paradigm.Brand doctors are the sameThere’s no better analogy for the situation professional service firms find themselves in when it comes to compensation. Agency executives are constantly looking for better time-keeping software, better ways to collect timesheets, betters ways to produce billable-time reports, and better ways to analyze the data. They are improving their practices, but it’s based on the wrong paradigm.Back in Renaissance-era Florence, imagine that at the end of the conference a bold speaker takes the floor and presents an extremely convincing argument that bloodletting is in fact a completely ineffective practice; in fact it makes the patient sicker instead of healthier. Let’s say that you come away from that speech convinced that bloodletting is actually a faulty (or even malicious) paradigm. Could you then return to your practice and continue cutting people’s arms? Well, could you?This is why it’s essential to focus on changing your paradigm instead of focusing so much on just the practices; because if you change your paradigm you can’t help but change your practices. In fact, a change of paradigm unleashes a torrent of new thinking about practices. The best approaches to value-based compensation for professional services firms haven’t been invented yet; they’re waiting for you to invent them.The gulf between knowing and doingIf you really want to get paid what your firm is worth, you must first leave that state of denial in which so many firms find themselves. Sigmund Freud described denial as “knowing-but-not-knowing” -- a state of rational apprehension that does not result in appropriate action.” Steven Covey described this phenomenon in an even more powerful way: “To know and not do is really not to know.” Medicine provides some other potent examples of how “knowing” doesn’t necessarily result in “acting”:* Even though by 1628 it was understood that the heart pumped blood through the arteries, the use of tourniquets in amputations didn’t happen until roughly a century later.* The microscope was invented by 1677, yet as late as 1820 it had no place in medical research, believed to be nothing more than a toy.* Germ theory was developed by 1700, yet didn’t take hold until promoted by Joseph Lister in 1865. Prior to that, infections were thought to be caused by stale air.In his fascinating study of this topic, historian David Wootton posits that these delays in adoption weren’t practical or even theoretical but rather cultural. The cultural and institutional legacies surrounding the medical profession were (and still are) huge hurdles in adopting the right practices aligned with the right theory.The same is true for most professional services firms. Professions and institutions have a life of their own, and it’s not enough to say, “I buy the theory.” You must overcome the inertia and adopt a new set of practices.