Investment consulting firm Watson Wyatt, which dropped its partnership structure last year, has introduced a long-term incentive plan for a small number of staff in its European investment practice.

The move comes as investment consultants face growing pressure to offer their employees more generous compensation packages to keep them from joining investment banks, fund managers and hedge funds. Watson Wyatt rival Hewitt Associates increased its bonus pool five-fold this year to curb defections. But Watson Wyatt's plan, currently open to only 14 people, risks upsetting second-tier management and others working in Europe and Asia who have not been invited to join. Paul Trickett, head of European investment consulting, said the plan was not closed. He said it was a powerful incentive to both the 14, as well others who could earn the opportunity to join later. The scheme operates like a shadow equity plan, where remuneration is tied to the profitability of the practice, and runs until 2010. Trickett said: "We're trying to change our business model to drive towards more added-value services. The plan is structured around providing incentives to the key group of people who are going to help us change the business model most." Watson Wyatt has been investing in new business this year from which it can earn higher margins if performance is good. One such area is implemented consulting, where pension schemes appoint the firm to hire and fire managers on their behalf. It earns a fee based on the performance of its choices. In response to whether the plan was trying to replicate the partnership structure, Trickett said: "It's much more open than what we had before in terms of being able to share directly in the growth of the business." When Watson Wyatt ended its partnership, the majority of proceeds went to a small number of people. Many junior partners then left for investment banks and fund managers in the months after the deal was signed. Almost none went to rival consultants.