How do analysts get compensated? [AR practitioner question]

question-mark-graphic.jpgNote: This post primarily concerns analysts who are employees of large firms like AMR, Forrester, Gartner and IDC. Analysts who are single practitioners or owners/partners in boutique firms have different compensation motivations.

Understanding how a person is compensated for their job can provide critical insights into his or her motivations and how to influence them. As a consequence, we receive frequent questions from clients regarding analyst compensation models. When considering this issue, it is important to realize that analysts have a complex web of compensations. The reality is that money is not the sole form of compensation for the analysts. For the good analyst, visibility in the industry and their perceived impact on companies and markets form important components of their total perceived compensation.

First, there are the traditional cash components of salary and bonus. For the most part, analyst salaries are not as high as many vendors believe them to be. Like most businesses, analyst firms do try to save money by offering salaries at the lower end of the scale for jobs requiring the level of experience that senior analyst positions require. Bonuses are typically a percentage of salary with payout based on how the firm is doing overall and how the analyst has met activity requirements (e.g., number of research notes written and number of speeches given). Some analyst firms occasionally include quotes in the press as one of many factors in awarding bonuses. To SageCircle’s knowledge, no firm has press quotes as part of the primary compensation calculations or even as a significant part of bonus calculation. For large firms, the financial results of any particular research service or team are not a common factor for determining a bonus. However, as some advisory analyst firms (e.g., Gartner) start to slice-and-dice their one-size-fits-all pricing model into separate fee role-based services, this form of compensation calculation could be incorporated again. This would be a return to what was common in 1990’s before the now defunct Giga used an “all you can eat” packaging as a way to compete versus Forrester, Gartner and (also now defunct) META Group.

There are other forms of cash compensation that go in-and-out of usage by the analyst firms. These secondary mechanisms can impact the vendor-analyst relationship. One such payout is a percentage cut of the analyst consulting day fee, typically 5% to 10%. The idea was that this percentage would help motivate analysts to travel for what were high margin engagements. However, in this economic environment, some firms are putting a quota on the analysts to perform some amount of consulting instead of paying out a percentage of the fee. Another payout is a finder fee for passing consulting engagement leads to the internal consulting group. Only analyst firms with large consulting groups have used this payout type.

Another class of compensation has to do with ego, not cash. In the formal and informal research we have done on the analysts, as well as our personal experience as analysts, we know it is very apparent that analysts have needs other than straight salary. Many analysts join a particular firm in order to have a broader impact on the market, vendors, and end users than their previous job offered them (see SageCircle’s “Analyst Hierarchy of Needs”). For these analysts, being acknowledged as an industry thought leader and as a trusted advisor to the most senior vendor executives trumps a middle-of-the-road salary. In other cases, getting the spotlight via quotes in the press or speaking at industry events strokes their egos. For some analysts, traveling around the world, staying at swank resorts and being treated like royalty by clients provides part of their compensation. They appreciate demonstrated “respect” for their influence.

SageCircle Technique: 

When chatting with analysts, AR staffers should use subtlety in probing for what motivates a particular analyst. Then you can start taking actions that feed those motivations. Here are a few examples (assuming that the analyst is qualified and trusted to carry out the activity):

  • If an analyst craves visibility, you can work with your PR department to start using the analyst as a press reference. This also works with analysts whose bonus calculation includes press quotes.
  • If an analyst wants to be seen as an industry thought leader, use the analyst as a keynote speaker at your company’s events (like a major user group meeting or a world-wide webcast) or suggest to industry conference and expo organizers that they use the analyst as a speaker.
  • If an analyst wants to feel like they have an impact on your strategy, arrange for informal strategy conversations with your CEO or other senior executives.
  • If an analyst wants to feel like they have an impact on your products, make sure you inform the analyst about every way he or she has impacted product development or research.
  • If your company is going to contract with the consulting division of an analyst firm for custom research, go through the analyst instead of going straight to the consulting group.

Bottom Line: There are many ways to impact an analyst’s compensation. While working this route will not guarantee that the analyst will write or say what you want, it does help build a warm and friendly relationship. A friendly relationship can improve your access to the analysts (leading to a situation where your ability to shape market perception is enhanced) and make the analyst more likely to check with you before going public with negative commentary (providing AR with the opportunity to eliminate problems to ongoing sales cycles before they occur).

Question: What do you think motivates analysts?