Eat What You Kill Operating Agreement: Understanding the Basics

The “eat what you kill operating agreement” is a term that refers to a compensation structure usually seen in professional service firms, particularly law and accounting firms. This type of agreement is rooted in the idea that the person who brings in the most business and generates the most revenue should be compensated accordingly. In simpler terms, it means that each member of the firm is responsible for their billings and will be paid based on the amount of money they bring in.

To understand this type of agreement, it is essential to look at its basic components. The first is that each member of the firm is responsible for their billings. This means that partners are not expected to share what they earn. Each member goes out and finds their own clients and generates their own billings. This means that each partner is compensated based on their individual performance.

The second component is that this type of agreement usually has a rewards-based system. Those who bring in the most business and generate the most revenue get to keep more money. This is sometimes called a “eat what you kill” system because each partner is responsible for their own earnings.

The third and final component is that this type of agreement often requires a significant amount of collaboration between members. Partners need to work together to ensure that they are all bringing in business and generating billings. This means that there is a strong incentive for partners to help each other out and to share information.

Benefits of the “Eat What You Kill” Operating Agreement

One of the most significant benefits of the “eat what you kill” operating agreement is that it creates a strong competitive environment within the firm. Each partner is motivated to bring in as much business as possible and to generate the highest billings. This, in turn, motivates others to do the same, leading to an overall increase in the firm`s revenue.

Another advantage of this type of agreement is that it provides a clear incentive for each partner to contribute to the firm`s success. Because each partner is responsible for their billings, they have a direct stake in the firm`s profitability. This means that they are more likely to make decisions that benefit the firm as a whole, rather than just their own practice area.

Challenges of the “Eat What You Kill” Operating Agreement

Despite the clear benefits of the “eat what you kill” operating agreement, there are also several challenges to consider. The first is that it can create a highly competitive environment that may lead to tension and stress within the firm. Because each partner is responsible for their own earnings, there is a potential for a lack of collaboration and teamwork, which can ultimately hurt the firm`s performance.

Another potential challenge of this type of agreement is that it can create a financial bias. Partners may become more focused on generating billings than on providing quality service to clients. This can result in a decline in client satisfaction and, ultimately, a loss of business.

Final Thoughts

In conclusion, the “eat what you kill” operating agreement is an important compensation structure in professional service firms. This type of agreement has the potential to create a motivated and competitive environment that can lead to increased revenue. However, it is important to consider the potential challenges and to ensure that each partner is working collaboratively and providing quality service to clients. By doing so, firms can reap the benefits of this type of agreement while avoiding its potential drawbacks.