The company, in a bid to hire and keep top-notch employees, will invest $200 million in e-commerce-related firms on behalf of its "high-performing" employees and intends to continue to invest another $100 million each year, the New York-based consultancy said in a statement today.
The investments are made through the firm's recently formed venture fund unit, Andersen Consulting Ventures. In turn, the money generated by these investments will be distributed to employees as "eUnits," essentially options in the fund, which are fully vested after a one-year period. The plan was announced to Andersen employees on Friday.
Andersen said that essentially all employees who have worked at the firm for more than three years and are below the partner level will receive approximately 500 eUnits. The firm believes that about 40,000 of its employees will participate in this new program.
During a conference call held earlier today, managing partner Joe Forehand said that the AC Ventures fund has been generating an "extraordinary rate of returns" and that the fund is currently managing a portfolio of about 20 companies in various stages of their lifecycle, from new start-ups to publicly traded companies.
Andersen and other privately-held Big Five consulting firms, including KPMG, PricewaterhouseCoopers and Ernst & Young, have been scrambling to step up their compensation programs. The traditional big firms are struggling to hire talented employees as smaller, more nimble Internet services firms, such as Scient, Zefer and Lante, offer employees hefty stock option packages and other attractive benefits.
Typically, managers at Andersen must achieve associate partner status before they can be considered for full partnership, a process that can take anywhere from 8 to 12 years but ensures huge compensation. The new initiative, which has been in the works since last November, signals the firm's intention to allow "top performers" a shot at a partnership role earlier in their careers. The 65,000-person firm currently has just 1,300 partners. The expanded partnership part of the plan is up for a final vote next month.
Tom Rodenhauser, an analyst who heads ConsultingInfo.com, said it was necessary for Andersen to make this move.
"They had to do this," said Rodenhauser. "Essentially, they're creating a (type of) public company within a private company feeling. They're making a huge bet that AC Ventures will create a lot of money and they're saying that they're willing to share it with a larger pool, not just the partners."
Andersen has launched several new Internet-related plans in the past three months as part of its ongoing efforts to retain and attract consultants as well as to better compete against the growing number of Internet consulting firms. Last month, the firm introduced its new prot?g? plan, a new program that will provide services and rental space to start-ups in exchange for a stake in those companies. The plan also gives Andersen employees the opportunity to participate actively in the new companies.
In December, Andersen launched a venture capital unit, called Andersen Consulting Ventures, which will invest as much as $1 billion over the next five years to create new Internet-focused businesses.
With this new initiative, the firm said its venture capital unit will initially allocate $100 million of its existing investments to benefit Andersen's top-performing and long-term employees. On Sept. 1, 2000, Andersen will commit an additional $100 million that will be invested through AC Ventures to generate potential returns for employees, enabling them to share in the wealth generated by the unit's investments.
Forehand also mentioned that the firm does not plan on spinning itself off with an initial public offering, but is focusing on the separation issue it has with Arthur Andersen worldwide, the accounting arm of the firm. Rival KPMG last month incorporated its consulting unit, the first step toward a public offering. All of the Big Five consulting firms have been dealing with the conflict of issues concern: a privately held auditing firm should not be consulting its clients on their businesses.
"They're not going to do an IPO but they have to do something to split up the profit centers a bit more," added Rodenhauser. "It's an acknowledgement that they're losing people and an acknowledgement that they can't retain people. They believe this (new program) is a big change for them, but really it's an acknowledgement of marketplace realities."
The firm hopes to double its partnership ranks to more than 1,000 new partners by this year as a result of the new initiative.