By Guest Blogger, Peter C Ross, Senior Consultant, William Thyme & Prophet
Recently I sat in on a discussion about measuring and rewarding fee earners in professional service firms, specifically legal at the ALPMA National Summit. 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 prompted 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 lion's 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 three slide presentation and immediately displayed it on our stand. The first slide simply said:
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 firm's 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
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 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 traditional 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:-.
- Give partners a MAXIMUM chargeable hours per day budget. I’m thinking 3-4 hours.
- Tell the teams that Partners are not the production engines, they are, and Partners have a different role (per the above suggestions).
- Set other time budgets for Partners to fill their days with stuff we want them to do
- Now, get radical, and come up with a completely new set of measurement metrics for Partners, including:-
4.1. Team average billable hours per day (including partners)4.2. Team Revenue4.3. Team Profitability4.4. Talent acquisition and retention metrics4.5. Client outcome and satisfaction metrics4.6. Working capital management metrics4.7. 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 production4.10.Penalties for exceeding billable hour budgets at the expense of the other non billabletime budgets.
Using techniques various described as balanced scorecards or composite metrics, we recommend developing an automated measurement environment which works from 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.
One of the things we often hear when we’re building measurement reporting systems in firms, is that multiple people like to lay 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.
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.
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.
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]
- Introducing Partner - internal referral: [Introducing Partner]
- Introducing non Partner - internal staff referral: [Introducing Staff member]
- Introducing client/contact - external referral: [Contacts liaison in firm]
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 or cash 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 emailed 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 .625 - see below )= $643,750
But what is this score 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:-
Raw Score (out of 1)
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.
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 encouraged behaviours, and it also needs to:-
- Be simple to understand
- Be Agile when the firms priorities change over time (due to market conditions etc)
- Be beyond argument in terms of measurement and application
So in essence, decide what the house you want to live 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.
About Our Guest Blogger
Peter C. Ross Peter C. Ross CA. is senior consultant with William Thyme & Prophet, a consultancy specialising in Legal Firm Practice Management, and with Report Factory, a management reporting, systems and process design consultancy.
Peter has a Bachelor of Business, with a major in Commercial Law and 25+ years expertise in the provision of solutions design across multiple industries and solution types, with a strong focus and specialisation in ideas and solutions for professional services environments.