by Michael J. Anderson

What's it worth?...

Wouldn't it be nice to live in a Utopian world where all of the partners in our firm agree to take on an equal amount of the management roles required for the greatest possible firm success...and that they are qualified to meet those management challenges. Of course, many are neither qualified nor willing to assume the roles. This is a major hurdle that professional firms must overcome if they are to achieve long term goals. Too many partners are focused only on the short term, in particular upon generating larger personal incomes.

Why would partners be willing to give up valuable time that could have been billable to dedicate some of themselves to firm management, practice group management, associate training, mentoring or teambuilding? Most professionals are under some level of personal financial pressure attempting to maintain a reasonable lifestyle while providing for projected education costs for their children and their own retirements. After all, partners have their own and their family's future to worry about and they perceive that those are best addressed in the here and now with billable activities. (Having said that, we must acknowledge those exemplary professionals who go to great lengths for the betterment of their firms and their practice group simply out of a sense of duty or loyalty.)

As our friend and colleague David Maister is fond of reminding us, Your billable time is your income, your non-billable time is your future. Partners have an obligation to themselves as well as their firms to devote some non-billable time to activities that will enhance their careers and their firm's long term profitability. In order to facilitate change given the realities of most professional firms today, we suggest that there are a number of steps to follow.

First, we must define what it is that we expect from team leaders. These expectations might include: responsibility for overall group profitability, training and development of team members, encouragement and support of innovation, development and re-enforcement of team and firm loyalty, marketing (by individuals, by teams and by the firm), the highest possible quality standards, continuing education, mentoring of juniors and overall morale.

Second, firms must provide and demonstrate the firm's management support of the team concept and individual team leaders. Why would any partner want to take on such huge responsibilities without some commitment and show of support. This can be done, in part, by allowing the practice leader some input into the compensation of their team members (not total responsibility or you run the risk of creating tyrants), responsibility for defining who should, and who should not, be members of the team and the creation of a Practice Group Counsel made up of the team leaders and members of the executive or management committees of the firm to facilitate intra-group and intra-management communications. Of course, compensating the leaders for that specific duty is the most direct way to indicate firm support for both the concept and the team leader.

Too often the major rewards in our compensation systems acknowledge this year's billings and receipts, with little or no consideration to the contributions of those partners who devote vast amounts of time in the non-billable areas that are so vital to our sustained success. Some firms do have the flexibility to reward through subjective factors within their compensation systems, but, in the eyes of many partners, such activities are given insufficient weight when compared to billings, receipts or client generation. Maybe it is time we recognized the leadership contribution with something more specific.

Our partners are smart people. They recognize which side of the bread the butter is on and if we keep rewarding only, or mostly, production, we will be unable to get them to do what needs to be done at the practice group level, or at least to take the leadership job seriously and do it well. Businesses cannot run without management. In professional firms, the difference is that we are most often using the same people to both manage the business and generate the income.

Some firms have recognized this problem in terms of Managing Partner and reward that person on a different basis. Some firms pay a salary to Managing Partners, others compensate on the basis of overall firm profitability while still others take a subjective approach to compensating their Managing Partners. In most of the firms that compensate for the Managing Partner, there is little or less emphasis on that person's production. Often, however, when it comes to practice group management, there are few rewards or incentives for those in leadership roles. Sure, some altruists do the job and do it quite well, but they are the exception rather than the rule.

Okay, so you've decided to compensate, in some way, those who take on a practice leadership role -- now the question is how do we do that so that it is meaningful to the practice group leader while not just being a drain on other partner incomes? The conflict appears to be between what we want -- to encourage high quality management -- and our fear of opening a financial black hole without adequate return. The idea is to help offset any possible income loss to a partner (and the firm) who has taken a leadership role within the practice groups caused by using a significant amount of their otherwise billable time in that role. The return on this investment might for some groups be obvious as time goes by and the group becomes much more profitable. In other groups the value may be more subtle and include such things as lower turnover rates or the development of a stronger client base.

For example, a practice group leader can add considerable value to the group and the firm by allocating some portion of their otherwise billable time and thereby create a team in which cumulatively all of the members are able to increase their billable time and /or their effective rates. If the performance of the group is not enhanced in some significant way, it may be a sign that you've got the wrong person leading the group. If you were to tell practice group leaders to reduce their billable time by three hundred hours per year and reallocate those hours to effective leadership, as a firm, you would not necessarily lose all of those three hundred hours. Much of the work might be delegated to other members of the group who may cumulatively produce more than they would have without that work. Even if the three hundred hours were completely sacrificed, the payoff is that the leader now has the time to make all of the other members of their group even more satisfied and profitable.

Another consideration when choosing leaders and whether to compensate them is that these are the people who will, in all probability, become the future of the firm. In fact, team leadership may be an excellent fast track or training ground for future members of the firm's executive committee or management team.

With very few exceptions, simplicity (remember the K.I.S.S. formula -- Keep It Simple, Stupid) is an attribute of the best management strategies and we think especially true in the case of rewarding practice group leaders. In the course of our work with law firms, we have discussed the challenge of enhancing the quality of practice group management with firm leaders throughout the world and they have shown us two ways that seem to be the most viable and acceptable.

The first method involves acknowledging non-billable practice leadership time as valuable to the firm by converting a limited amount of that time to the equivalent of billable time, at least when considering partner compensation. Our research shows us that the average practice group leader actually spends 205.5 non-billable hours per year in that role -- that's about a half a day a week. Progressive firms are allowing those leaders to convert (for compensation purposes) up to a set amount of that time to the equivalent of billable time...usually capped at around 300 hours. The reason for a 300 hour limit is twofold: it sends the message that the firm management considers that to be a reasonable time budget for doing the job properly and it helps to avoid any possible time recording abuses or even the perception of such abuses.

For those firms who prefer that part of a practice leader's compensation to be more directly related to the group's performance, some have adopted pre-set bonuses based on the group's accomplishments. Beware though that the measurement is NOT how did the group perform compared to the other groups, but rather, how did the group perform compared to its own history. (Otherwise you will end up with very discordant internal competition.) One approach to compensating in this way might be to use the leader's recent income history as a base and increase or decrease that figure based on whether or not the practice group improved its performance.

Of course, to measure a group's profitability, you should have an idea of their costs so as to arrive at a net profit amount. However, if you are not very careful, defining the costs can become a divisive exercise with people always complaining about what, or how much, costs have been allocated to their group. To get around this road block, many firms have simplified the calculation by just using total billings minus all compensation costs (partners, non-partners, staff) to arrive at a profit amount. That can easily be compared back to historical data for the same incomes and overheads and accounts for any growth or shrinkage within the group.

Each individual firm choosing to compensate team leaders will then have to make the decision as to whether all or only part of the compensation for their leaders should be by way of one of these methods. At our PracticeCoach® conference in Chicago, there was a great deal of interest among many practice group leaders for a compensation system based totally on group performance. Those holding such a view felt that this might cause leaders to identify more with the objectives of the team because their personal fortunes would directly rise and fall with the team's successes and failures.

We sometimes think of profitability as being the sole measure of performance. Obviously, that should not be the case. The measurements for successful practice leaders should include the net profit of the group, of course, but we should also consider other factors which combine to create the most successful groups. Among those things would be: a reduction of attorney and staff turnover; efficient and effective use of all personnel (working smarter, not harder); group morale; marketing in roads that may not be fully realized yet (especially in the area of better business); fostering of innovation and new specialty niches; better skills development and knowledge sharing; client retention and the expansion of work from current clients; pride in the group and the firm and a balance between quality of life and job satisfaction. All of the above will eventually lead to better overall profitability, but we must also recognize their importance along the path to profitability.

We have found that many of the best firms regularly have the members of a group complete a feedback form assessing their leader's qualities and ability in specific leadership areas. The best leaders value those responses and they are also valued by the members of their group for demonstrating an appropriate leader's attitude in seeking such feedback.

If you are considering some form of compensation for practice group leaders, you may wish to pilot the concept with a few leaders to see if it really improves profitability, reduces professional and/or staff turnover, improves team and cross selling marketing, creates a more focused method of manpower utilization and delegation, creates greater job satisfaction with the members of the group as well as with the leaders, improves morale and team spirit and affords a better method for conveying firm goals and strategies to the individual professionals within the firm.

Most good firms realize that we must be organized in practice groups to meet the ongoing and ever increasing demands of the market place, of the profession and of the professionals of those firms. There may be no choice -- there will likely come a time in the foreseeable future when focused leadership at the team level will become a matter of survival. No firm can afford to bet that its competitors will fail to recognize this new fact of life. It is imperative that good firms also recognize that those partners who contribute to the efficient and effective use of these practice groups are recognized in a meaningful and encouraging way.