Fair and equitable: Get partners to trust your new reward programme

A logical starting point for any law firm interested in reassessing partner contribution and its relationship to partner rewards is to ask:?

• what is the firm asking the partners ?to achieve? and

• how is the firm asking the partners ?to achieve it?

There are several formal sources in which partners (who are looking for it) might find such direction.

The first source will be the firm’s competency framework (however it is described) for the partner role, which is likely to describe the key performance areas for partners and some positive indicators associated with each area.

The second source of direction will be the firm’s overall statement of its strategy, although for an individual partner to find relevant personal direction, it must be relatively easy to draw a direct line of reasoning from that general firm strategy down to what the partner is expected to do in support of it.

That can lead to a third source of guidance to a partner: a set of individual objectives, usually set (or better, agreed) on an annual basis, connected back to that wider firm strategy.

A fourth source of guidance, and often one of the most powerful for partners, will be annual hours or fee targets built around different types of billings.

One should acknowledge that these sources of guidance may not be complete and coherent in any given firm and that not all partners may pay full attention to them. For the present purposes, however, I will treat partners in general as willing to follow firm guidance as to what is expected, and accepting that assessment of their contribution will take place against those expectations and that rewards will be in some way related.

Core partner competencies

The major areas of partner activity against which I would expect most firms to assess partner contribution are as follows: ?

• management and growth of client relationships;

• development of new business;

• legal expertise;

• personal fee-earning;

• financial and business management; and

• development and leadership of others.

These are the core areas that one would expect to see in a firm’s competency framework for partners and also as setting the context for the agreement of individual objectives, linked to firm strategy.

Very few of these contributions can ?be directly and unambiguously assessed first hand, so it is necessary to create various tools (metrics) to support and inform partner assessment. These tools can be categorised as follows:?

• data – existing information that can be extracted directly from the firm’s IT systems, particularly the practice management system (e.g. all the usual billing numbers);

• measures – other aspects of contribution capable of quantitative assessment, but usually requiring some calculation for the purpose of contribution assessment (e.g. number of client referrals to other partners);

• indicators – things that can be observed but not usefully quantified (e.g. “is approachable and relates well to others”); and

• feedback – subjective comments of colleagues working with that partner, provided either informally or through some structured 360-degree system. ?

The use of these tools, though they are a familiar part of the landscape for many of us, carries with it a number of challenges that create issues in practice.

Measuring contributions

One starting point in discussing these various metrics is the simple point that some elements of contribution are more easily quantifiable than others.

The easiest contribution of all to measure is a partner’s personal fee generation through time worked on client matters. Contrast that with a partner’s contribution to associate development, for example. The simple total number of hours spent on this activity (if captured) may be a poor proxy for the value created for the firm during that time.

This leads to the related problem of data, measures and indicators becoming confused with the underlying ‘good’ that they are intended to represent, and a greater focus on performing well against the metric than in delivering the underlying good. Continuing the above example, if a firm does choose to track hours spent on associate supervision as a measure of contribution to the development of the firm’s human and knowledge capital, then lengthy meetings and partner-let workshops may start appearing in associates’ diaries.

There are several other problems ?with the above metrics, a number of ?which have the common challenge ?of our needing to make judgements ?about overall performance from limited items of information.

Where we obtain feedback from, say, five colleagues out of a team of 20, how can we say that it is likely to be particularly representative (especially where either the partner being assessed has selected those to give feedback, or vice versa)?

Similarly, where a partner cites one example of constructive cross-selling in his annual appraisal submission, how confidently can we infer that he is generally diligent and well-skilled in that area?

In all these situations, the unreliability of drawing wider inferences from a few points of information come into play and firms will need ways to control for these risks. The two most important ways to ?do so will be the appraisal meeting itself and the broader discussions conducted by the firm’s remuneration committee ?(or its equivalent).

In the discussions which take place in appraisal meetings and around the remuneration committee table, some form of relative assessment is needed, roughly ranking the contribution of one partner against wider group norms.

Where there is reliable data with a high correlation with the underlying thing of value, it may be relatively easy to rank one partner against the wider group (although even that has its dangers). But, where a good characteristic can only be inferred by reference to indicators and/or feedback, it may be harder to make relative assessments that are fair and reliable (could you arrange your partners in ?precise order of their ability to supervise trainee lawyers?).

Nonetheless, some approximate way of communicating relativities is likely to be needed, and forms of grading system seem to be gaining in acceptance. For ?all their potential faults, these grades ?can provide a useful mechanism for conveying to a partner and indeed to a remuneration committee some useful sense of how a partner is considered ?to be contributing in various areas.

Mapping performance

One distinction that can perhaps be usefully made is that between a partner’s underlying trend of contribution and what that partner has delivered in the most recent period for which contribution is being assessed.

A partner who can be expected to put in a ‘par’ performance in most years will often have good or bad years relative to that general trend. A particularly good year can come if one or more clients instruct the firm on unusually large matters, or if the partner is able to win exceptionally strong media coverage for the firm on the back of such instructions. A particularly weak year can come for opposite sets of reasons.

Using the idea of ‘trend contribution’ and ‘most recent period’ contribution can help us make more sense of some of the questions that frequently arise in assessing partner contribution, for example that of inputs versus outputs.

Trend contribution will map more closely the pertinent inputs of a partner against a particular area of performance and/or the extent to which he has established the skills, resources or connections needed to perform well. Most recent period contribution will reflect outputs and measurable results, with much less regard to the extent to which the result reflects diligent work by the partner to bring it about.

This distinction is particularly well illustrated in relation to the development of new business, where the relationship between inputs and outputs can be far from linear. A huge result can sometimes flow from modest effort (such as when a contact one had almost forgotten about refers a major matter). Equally, however, a well-structured business development programme may take a great deal of time ?to produce tangible results (though, as ?time goes on, one will increasingly need ?to challenge whether the direction is ?indeed the right one).

So, the trend contribution of a partner is the contribution that he could be expected to make in a given year, having regard to general skills and attributes, patterns of activity and an average amount of luck during the year in question. This perhaps represents the underlying value of that partner to the firm and, on one view, sets the most appropriate level at which to match contribution to reward.

However, for a range of reasons, it may also be important to reflect the non-trend elements of a partner’s performance in assessing contribution and, depending on your system, in making reward allocations that follow from it. Not the least of these reasons is the motivational effect and sense of fairness that can be expected to follow from positive feedback being given for strong results achieved and, conversely, appropriate levels of challenge in situations where a partner has undershot against his underlying ability to contribute.

Revisiting remuneration

How these assessments of both underlying trend of contribution and most recent period contribution are actually reflected in the firm’s remuneration system will depend on the nature of that system.

A pure lockstep model will absorb variations in the most recent metrics period performance as the typical swings and roundabouts of professional practice. By contrast, a pure merit model will adjust that partner’s profit share by significant amounts from year to year.

Given the current popularity of the modified lockstep model, there is a good case for seeking to match each partner’s position in the lockstep with his underlying trend of contribution. Any bonus element would then be used to reflect the particular contribution of partners in any given year who have delivered significantly above their trend contribution level (or those who have delivered above the highest permitted level in the lockstep). Typically, but not always, bonuses awarded in this way will reflect unusually high levels of financial contribution, since these can show the greatest spikes from year to year.

A further reason for placing some real value on inputs is that they may be the most reliable indicator of meaningful contribution in relation to matters likely to be of wider firm benefit, but unlikely to show up in the measures (especially narrow sets of financial-only measures) attributed to a particular partner.

A good example of this might be in relation to those partners charged with supporting the firm’s risk management function, where the proof of a job well done is largely in the lack of issues coming to the attention of management. So, while one should go beyond mere membership of a risk committee and make some assessment of the quality of contribution provided to it, meaningful contribution in this area is likely to be an input-oriented judgement.

 

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Fairly assessing partner performance

• A clear description of the role of partners in your firm should provide the starting point for an objective assessment of individual partners’ performance

• The general role description should be specifically supplemented or adapted to individual partners to make clear what is required of them

• Both the general partner role description and each partner’s objectives should reflect the firm’s strategy and objectives

• Clear commitment to these sources needs to be shown by the firm’s management team in appraising and setting rewards – partners may otherwise look for informal or unstated requirements if they are perceived to be valued more highly

• Measuring partner performance requires a mixture of techniques and measures, sometimes using existing data, but other times creating custom measures

• It is tempting for appraisers and appraisees to focus too much on the hard financial data which, although of course relevant, can be dangerous if taken in isolation

• Careful attention to the nature and quality of a partner’s activities can be a more informative guide to long-term performance than a look at last year’s results, which may have been achieved to some degree through luck or the efforts of others

• Some valuable activities on the part of partners are reflected in the invisibility of (bad) outcomes, such as a strong contribution to risk management

• The setting of basic partner pay and the awarding of bonuses should reflect different aspects of a partner’s performance and the firm should be clear on what is reflected where

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A fair system

The result of all of the above should be a system in which partners should focus their contribution around: ?

• a clear framework setting out what is generally expected of partners in the firm; and

• a set of agreed objectives specific to that partner, bringing out particular areas of emphasis for the current year.?

The assessment of a partner’s contribution should be made with regard to those materials and should blend together both quantitative and qualitative elements and both inputs and outputs. This should be done in a way that provides a fair assessment of that partner’s contribution on both an underlying trend basis and a way that reflects particular highlights or shortcomings in the most recent period. Good luck with all of that!

Ian Jeffery is the managing partner at UK law firm Lewis Silkin (www.lewissilkin.com)