BearingPoint Struggles To Hang On to Its People

As Harry L. You arrived at the troubled BearingPoint Inc. consulting firm in early 2005, the new chief executive couldn't help but notice a disturbing trend: A lot of people were heading in the other direction and quitting the company. More than a quarter of BearingPoint's consulting staff left voluntarily last year, up sharply from previous years.

To stem the exodus from the McLean firm, You over the past year has handed out millions of shares of restricted stock to hundreds of key employees and elevated the company's bonus system to a central place in his turnaround strategy.

BearingPoint had accounting problems, legal troubles, a fall-off in European business and such a tangle of other difficulties it had to spend $100 million to sort out its financial statements. But You said in recent interviews that changing the compensation structure was "the biggest thing" he could do to change the company's culture and keep hundreds of managing directors from walking out the door with their expertise, contacts and clients.

"People respond, of course, to how they're paid," said You, who was given the power by the company's board to award up to $165 million worth of restricted stock to employees at the managing director level and above. He has said he wants also to make BearingPoint's thousands of consultants eligible for the program.

Using financial incentives to persuade employees of troubled companies to stick around is far from novel.

"You see this all the time in instances where people need to make a change quickly or are under time pressure," said Brooks C. Holtom, a Georgetown University professor who has studied employee-retention methods.

Stock awards and bonuses "are often an effective way to put glue in the seat . . . if the amounts are large enough," said Mark Rosen of Pearl Meyer & Partners Inc., a consulting firm that specializes in compensation practices.

BearingPoint executives note that the new compensation strategy is just part of the effort to turn the company around and make it a more attractive place to work. After months in which BearingPoint's workforce was preoccupied with correcting bookkeeping errors from previous years, the company passed a key milestone last week when it filed its complete financial statements for 2004 and restated its earnings for 2002 and 2003.

But reducing turnover is nevertheless critical. Even more than in most industries, Wall Street analysts track attrition at consulting firms carefully because the employees are, in essence, the companies' biggest asset.

"It's the second or third thing you look for in a company," said Andrew C. Steinerman, an analyst with Bear, Stearns & Co.

BearingPoint has been in turmoil for the past 15 months. In November 2004, longtime chief executive Randolph C. Blazer was "asked to leave," according to company documents filed with the Securities and Exchange Commission, just as news of accounting errors began to emerge. Last year the SEC began an investigation of BearingPoint's accounting, and several lawsuits were filed by shareholders.

People started quitting -- at an annual rate that peaked around 28 percent last fall.