Why partner remuneration needs an overhaul (and perhaps lawyers as well)
I’ve long thought that the remuneration models in legal and professional service firms don’t really make sense. What seems to typically happen is that firms talk about the desired behaviours and outcomes they desire form Partners, and then reward them based on something entirely different.
If you take the higher order definition of what a partner is there to achieve, it looks something like the following (in order):
- Be available as a trusted advisor to valuable clients via a close relationship
- Attract, retain and develop a team of skilled professionals who learn from the partner and espouse the partners ethical and technical values
- Direct, qualify and manage a pipeline of fee paying services to their team, ensuring all team members are engaged, challenged and occupied, and clients are professionally and expertly serviced for their legal needs
- Contribute to and develop the firms standing in the legal, business and general communities, enhancing its reputation and position of prominence
- Mentor and develop new partner quality professionals, leveraging their skills and ensuring firm expansion and appropriate succession planning
Now this all sounds pretty sensible, smart and noble. The problem is what happens next.
Most remuneration models are heavily weighted towards personal billable hours of the partners personal exertion, even when this almost guarantees none of the above loft goals can be met. I’ve never understood how that makes sense.
So how do we fix this issue?
Most of us are quite familiar with the balanced scorecard method of performance measurement. Sadly I’m not sure we’re very good at using it well.
It seems to me that personal fees needs to be a very small part of this scorecard (or indeed no part at all), and that the metrics used to measure partners need to reflect the goals we have for the people in that role. This is a stab in the dark, shopping list, but reflects the thinking I feel is needed:
- 50% – Client performance and satisfaction with the partner
- 30% – Team performance and assessment of their mentor
- 20% – Firm and community contribution
- 0% – Personal Fees
Personally, I think this type of scorecard (varied as required) is getting way closer to rewards matching desired outcomes.
This is absolutely NOT to say we don’t want partners to work on matters and for clients to pay for that time. What it is saying is that this personal exertion and expertise time needs to be contributing to the measures above, rather than being a measure in its own right.
The probability is that partners will still have a production budget as we still need that input from them, indeed it’s critical. I’ve said a number of times there is justification for penalising partners for exceeding such a budget. Yes, I am serious.
OK, so what about lawyers?
Well of course things are a bit different here, the Lawyers are exactly where we do want production and value to occur. Depending on the team and the seniority we may or may not be keen for the Lawyer to be marketing and bring in new work personally, but we certainly should accommodate that and other metrics into their scorecard.
I think it’s a good idea to pay bonuses monthly to lawyers based on performance. The typical annual review and salary adjustment loses its shine after a couple of months, but a monthly set of measurements and an associated remuneration keeps the focus on the metrics month after month and should result in a more balanced and tuned performance over time.
So, what balanced metrics might work for Lawyers
- 50% – Billed and recovered hours
- 30% – Client satisfaction on the matters worked on
- 15% – Matter profitability on the matters worked on
- 5% – Longer term firm contribution
Again, what we’re trying to do here is reinforce the desired behaviour and create the shortest path from behaviour to remuneration.
Of course, making a short path means we need rapid, automated and reliable reporting that can be confidently used to measure and drive the delivery of the bonus on a regular basis. It also needs to be self-correcting when anomalies like bill reversals and credit notes creep into the mx down the track, so that whilst paid monthly the annual bonus values still make sense for both the participant and the firm.
This, of course, can all be done, but requires design, discipline (both technically and in a policy sense) to get delivered cleanly and efficiently.
