Finders, minders and grinders: working out an attribution system between partners

How should you reward different skills within your firm? Long tradition divides lawyers into finders, minders and grinders. Finders bring in the clients, minders handle the relationships and grinders churn out the work. Law firms tend to value them in decreasing order, with the grinders often not reaching partnership level. In fact, of course, most partners will have elements of each. We want to measure partner contributions and performance to make sure that partners are contributing enough to merit their profit shares, and to allow performance-based remuneration. But how should their respective contributions be valued? Your view is likely to be coloured by where in the practice you sit.

Take the case of Hook, Lyne & Sinclair LLP (see box below). The three name partners share profits in proportion to points, with 100 points to be allocated between them. They've been in partnership for years, without ever reviewing '¨their contributions or their profit shares. With a few adjustments, this scenario could apply to a firm of any size and sophistication. Hook was once the driving force behind the firm but his role is now not as critical as it once was. Lyne is the managing partner, dealing with major clients and still earning fees but the other two think he spends too much time managing instead of fee earning. As to Sinclair, he is the biggest biller by far but the Hook and Lyne think he is not really partner material.

SUBJECTIVE VALUE

In most firms how you value the partners' respective contributions is often entirely subjectively. Decisions on partner performance and reward continue to be made based on whose face fits, who has political power in the firm and who shouts loudest. Objective evidence is seized upon if it supports the desired outcome, but adjusted or ignored if it doesn't. Senior partners see the firm's success as due to their past efforts and present profile; high fee-earners think they are the only ones bringing in the money; and management and marketers see themselves as multiplying the work of others.

Partners tend to over-estimate their personal contribution to bringing in work. The name and reputation of the firm are at least as important in many areas of practice. In some cases the main work-getter can leave and the impact is hardly noticed. In others, the loss of rainmaker can be disastrous. The firm's work flow comes from a mixture of the profiles of the partners, the quality of its previous work, the service it gives its clients, the goodwill attaching to its name, the unwillingness of clients to change, the results of its marketing efforts and spending, and the location of its offices.

Management costs money, and is valuable. How many other businesses try to run with the managing director trying to do the job in the odd few minutes he can find in breaks from doing his day job?

Because lawyers charge largely on a time basis, it's easy to believe that fees and profits should be attributed to the people who record the time, or to the partner who supervises them.

Instructions and client gains are rarely attributable to one reason or one person. Profitable firms are likely to be willing to spend a certain percentage - perhaps 15% - of fees to acquire the work. Out of that, the firm's entire cost of acquisition to the work has to be paid, including the cost of partner time. So for a partner to be rewarded solely for marketing, he would have to be bringing in work for seven fee earners to make up for his own lost billings.

OBJECTIVE SPLIT

If you do want to reward partners (or others) by reference to their attributed shares of turnover, it can be done by dividing up each £1 billed. You might say 65p is the fee earner, 15p the person bringing in the work, 10p management and 10p for supervision. Sometimes the same person will get more than one share of the same fee; sometimes each share needs to be split, say where two partners bring in a client, or there is more than one tier of management. Work through some examples and sanity check them; the right percentages will vary widely depending on the size and nature of the practice. Effective and transparent (and probably costly) systems will be needed to attribute shares of each bill.

Having got that information, what do you do with it? Very few firms would want to divide profit or bonus staff directly according to that contribution assessment - that leads to an 'eat what you kill' philosophy, with potential for cheating and acting in self-interest rather than the interests of the firm. All reward structures should aim to encourage behaviours that benefit the firm, including co-operation and long-term thinking. But if a person gets attributed a share of fees for internal referrals, it may make him far more likely to make the referral, rather than keeping the work or squandering the opportunity.

You could use attributed fees just as a management tool, a guide to performance, not linked to any automatic effect on remuneration. At some point costs have to be considered as well as gross fees - £5 of low-margin work may be worth less than £1 of premium work, and marketing costs need to come out the 15p introducer's share. Some firms prefer to make gradual annual adjustments to profit shares despite big variations in performance statistics, so that changes happen according to long-term trends rather than one-year fluctuations.

PROFITABILITY BENCHMARK

Of course it is better to measure contribution by reference to profitability, rather than by gross fees. It's also far more difficult. Profit is the result of the entire firm's activity. Attributing overheads to calculate profitability at an individual level is even more difficult and controversial than attributing fee income. If the personal injury team squeeze their desks together, does their share of property costs go down? Is the cost of the accounts department attributable to all those small bills for wills, or conveyancing's disbursement postings, or commercial property's big client account movements? What is the cost of capital, and does cash-positive conveyancing get a credit? Does a bad debt or negligence claim wipe out a '¨partner's earnings?

Most firms shy away from any mathematical approach to attributing fees or profit, except when measuring team or personal billings. Most commonly there will be an evaluation of performance in a number of areas, including billing, marketing and management. But the weighting given to each is likely to be subjective, and so is the scoring; once you multiply an estimate by an estimate, any scientific veneer is soon lost.

One way to focus is to look at the market value '¨of each partner. If someone else came along with that skill set, those clients or that affable, client-winning personality, what would you pay them '¨to join you? Perhaps the relationship of those values to each other gives some basis for a reward system. Again, though, it hits the same objection: double-counting. More than one person will be claiming credit for each client relationship and each £1 of fees.

Hook, Lyne and Sinclair may never agree to any attribution system, but you may want to put it on the agenda for your next meeting. SJ