Partner performance measurement Why most firms seem to have it wrong.

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1 Partner performance measurement Why most firms seem to have it wrong. Recently I sat in on a discussion about measuring and rewarding fee earners in professional service firms, specifically legal. I was very surprised to hear that there was a blurry line (almost no line) between fee earners and partners in terms of real measurement metric and methodologies. It s promoted me to write this little article outlining my (quite different apparently) views on the topic. It seems that the majority of firms still base the lions share of partner performance measurement on personal fees created or billed, and quite frankly I m shocked and disappointed that this is still the case. I was so shocked I wrote a thee slide presentation and immediately displayed it at the conference I was at (the slides are attached in their original hurried form). I ve typically held the view that a Partner (or senior manager) in a professional service firm is primarily a business unit manager, project manager and marketer. Not to mention a mentor, quality control officer and a human resources manager within that business unit. I want to make the partner responsible for a lot of things which have nothing whatsoever to do with their personal billable fees (well very little), but I do want them to be productive. Those things include:- Attract nurture and retain great professional and support staff Promote the firms reputation and credibility Support and focus on client needs Build relationships internally and externally which make a difference Control the quality of output of people in their team and the firm generally Be available as the trusted advisor role for key clients I m guessing that most of you reading this are nodding away saying yes that s what I want partners to do as well, and yet so much of their performance measurement seems to be focused on personal fees, which encourages them to actively AVOID doing most of these things. Some simple examples In times of limited work flowing into the firm or team, (most firms have seen this in the past two years or so), I want Partners to work on changing that amount of work and increase the overall activity levels in the firm. Ideally in advance of, but certainly during these periods, Partners should be innovating, marketing to clients and potentials, and doing everything they can to keep everyone in their teams busy. When, and only when, the team is screaming enough! should

2 the partners be getting involved in the more routine production aspects of the business. Up to that point they ll be pretty fully occupied with account management, mentoring, quality control and marketing. By contrast, what these personal measurement approaches encourage partners to do is hoard whatever residual work exists, in order to keep their personal chargeable hours and production high, at the expense of their talented and dependent resources. Of course when the work returns (assuming it does), these talented resources have already become disenfranchised and are looking about for new roles in what is now becoming a talent poor competitive market place. The net result is that we ve kept these expensive talented resources and starved them of work and development during the lean times (and hence not got much production out of them) and now poised to capitalise on the talent we have as demand increases, we ve actively encouraged them to leave. So what to do? Well having decided that just measuring billable hours isn t smart, what should we be doing to manage Partners and Senior managers of our legal services business units. I accept that some of this is radical, but then as Einstein said Insanity is doing the same thing expecting a different result. He seems to have been universally accepted as being quite bright, so it s perhaps worth thinking about a different approach:-. 1. Give partners a MAXIMUM chargeable hours per day budget. I m thinking 3-4 hours. 2. Tell the teams that Partners are not the production engines, they are, and Partners have a different role (per the above suggestions). 3. Set other time budgets for Partners to fill their days with stuff we want them to do 4. Now, get radical, and come up with a completely new set of measurement metrics for Partners, including: Team average billable hours per day (including partners) 4.2. Team Revenue 4.3. Team Profitability 4.4. Talent acquisition and retention metrics 4.5. Client outcome and satisfaction metrics 4.6. Working capital management metrics 4.7. New matters acquired fee estimates (see later re referral commissions) 4.8. New Matters commissions earned (see later re commissions) 4.9. NO measurement, whatsoever, of partner production

3 4.10.Penalties for exceeding billable hour budgets at the expense of the other non billable time budgets. On the basis of what gets measured gets done, this should push some chases which I think are worth having. But how? Using techniques various described as balanced scorecards or composite metrics, we recommend developing an automated measurement environment which works from the practice management systems and other relevant sources to automate these metrics and combine them into overall scores which Partners (and others) can see and monitor every day. In my view these measurements must not only be spoken about, they should be obvious, available, and they should have teeth. That is to say the overall measurement should be linked to rewards, or indeed the removal of non-compliant partners. Sounds harsh, but done well, the measurement allows for partner differences, and builds the overall scores to fairly assess them. Commission One of the things we often hear when we re building measurement reporting systems in firms, is that multiple people like to pay claim for the credit of the same bucket of fees, under different guises, e.g. Responsible Partner Acting Fee Earner Person introducing (client) Person introducing (matter) Person responsible for area of law Various others. So in true lawyer style, the rules are re-interpreted to suit the facts. nothing surprising there, but if we re rewarding, financially or otherwise, more than one person for the same $1 of revenue (or profit) we re going to quickly run out of cash or credibility or both. I ve long held the view that there are different types of partners in professional services firms, and that a successful firm can nurture and encourage an appropriate mix of these partner types. There s also partner types we don t want, but the measurement system should sort that out. One of the key differences often talked about is rainmakers vs technicians, all partners have some mixture of these skills, but I think we d all agree, its rare to find two partners the same or indeed those even rarer individuals that excel at both.

4 Some partners are very very good at bringing in new work, managing client relationships and expanding them, and ensuring that the firm sees work types from the client which exceed the relevant partners core skill set. Some people call this cross-selling which I think is probably wrong, but for the sake of clarity of terminology, we ll leave it at that for now. Some partners are really not great at talking themselves or the firm up, but they re definitely the Gals and Guys clients want on their side when they have a challenge inside the domain of expertise of these excellent technicians. And still others are great at innovation, developing new product services and designing ways of delivering them and marketing them to widen the firms offerings and overall revenue base, making the firm more agile and adaptive to regulatory and other changes. And one of my favourite groups, are the gals and guys who just get on with it and get the work done, managing efficient and large teams that plough through the work as efficiently as possible, keeping clients happy via delivery of value packed services, often of a relatively straightforward but important nature. It seems very clear to me that we can t treat, measure and reward all these people on a single set of fixed metrics, yet we need them all, and in most firms they respect each others talents and try to make the most of them across the firm. So what steps can we take? I have long held the view that use of introducing commissions is a valid and sensible way to manage some of the challenges that these various skill sets and results present. So here s what I think can, and probably should, happen. When a matter (not a client) is created on your PMS system, it s source of business should be clearly identified and recorded. That might be:-! Firm reputation - a walk in!!!!! [Marketing Dept]! Partner contacts - responsible partner!!! [Nil]! Introducing Partner - internal referall!!! [Introducing Partner]! Introducing non Partner - internal staff referall!! [**Introducing Staff member]! Introducing client/contact - external referall!! [Contacts liaison in firm**] In all these cases, I would charge the responsible partner a commission (via their P&L or a fee credit reallocation) to the square bracketed entities above, whom should recognise that commission as revenue in their own P&Ls. As to the value of the commission, I think that s a matter for each firm, but I d suggest between 5% and 10% of fees on the matter or related matters for a fixed period from the initial point of introduction. I m firmly against these commissions going on for very long on the basis that I introduced the client because once introduced and the majority of the first matter dealt with, it is the skill and relationships of the receiving partner which have kept the client.

5 Even in the case of non fee earning (admin) staff I disagree with cash bonuses to individuals, preferring that the relevant team or dept is simply credited with that revenue. In the case of a fee earner it should be seen as fee income of the individual earned from the expense of the matter recipient (i.e. No P&L effect for the firm overall). Obviously there s not much benefit to fee earners teaming up and cross referring, as someone has to pay (unusual in most firms where the system is just all credits). In my view it is the responsibility of the referring party to ensure that the data is recorded to support their commission claim, but this needs to be made simple and transparent to work well. The easy way is simply publish (via an ed PDF or an intranet page) details of every matter opened and the referral credits associated with it. Allow 48 hours for people to claim missing referrals after which that matter is locked away for this purpose. OK, so that s commissions, now what? What we now have to do is work out the methodology of scoring in order to properly value each partner and their contribution. As stated previously, my strong view is that the partner should be assessed on the revenue and profitability of their team (i.e. The small unit they control), rather than personal productivity. Below is an example (not a recommendation) of how this might work. Fees of the team!!! $ 1,000,000 Commissions earned!! $ 100,000 Commissions paid!!! $ (70,000) Measurable Revenue!! $1,030,000! multiplied by score factor (say see below)= $643,750 This is the value of the partners fee impact for appraisal purposes. But what is this factor of which I speak? How is that determined? The factor is an overall metric which represents the balanced or weighted scoring of the soft factors in performance of the partner and the team general, it might look like the following:- Metric Raw Score (out of 1) Weighting Score Process compliance /100*.65=.065 Talent attraction /100*.6=.12

6 Metric Raw Score (out of 1) Weighting Score Talent retention* /100*.5=.2 Client Satisfaction /100*.8=.24 So what we see here is that the (current) highest weighting is afforded to talent retention where this department scores the lowest of it s scores. It s punished accordingly in the final score. Summary It s not sensible to encourage partners to behave in one way, yet reward them for different (and contrary) behaviour. The measurement system, in my opinion, has to match the encoraged behaviours, and it also needs to:- 1. Be simple to understand 2. Be Agile when the firms priorities change over time (due to market conditions etc) 3. Be beyond argument in terms of measurement and application On the other hand (and possibly the subject for a different paper), if you want partners to be technicians delivering high end technical services and advice, but not manage their teams and workload, that s ok too, but you need to take a very different and radical approach to that idea. The premise of my thinking here is that you can t have both because the drivers are in conflict and that s why it s traditionally been so hard to manage partners. So in essence, decide what the house you want to love in looks like, and build it. Don t just follow fashion and tradition, you need to think it through, and you might need help to get it right. End. Peter C. Ross CA. is a senior consultant with William Thyme & Prophet, a consultancy specialising in Legal Firm Practice Management, management reporting systems and processes. You can contact peter via Peter@WilliamThymeProphet.com

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