Partner Performance and Compensation

Three years ago in Communiqué, I wrote a two-part article on “Collaboration and Compensation.” Part I appeared in the September 2014 issue, and Part II in the October 2014 issue.  Since that time, I have received several inquiries in compensation engagements about partner performance. The inquiries go beyond financial performance and general “team building” activities. Leaders want to know how to reward – explicitly – the activities of partners who contribute to a lasting, profitable firm.

The interest in measuring partner performance more broadly may arise from two developments in U.S. law firms over the past ten years. First, we know that many firms, from global to mid-sized, now use competency models to evaluate and promote associates. These competency systems are a product of influential professional development staffs. They have persuaded leadership to look more thoroughly at who deserves the next tier of those expensive associate salaries. For associates, a competency measure is a specific, measurable skill, knowledge level, analytical prowess or business-development activity. Typically, associates progress through three or four stages of competency before making partner.

Convinced that this works better than lockstep annual promotion for associates, these same firms are asking us if we can’t also measure partner competency (but rename it “partner performance”).

A second influence comes from the recognition that getting and keeping top clients requires a high level of service, value billing and legal project management. A single relationship partner can no longer meet the expectations of big clients. It takes a team. Perhaps that’s why in April, global firm Linklaters announced that it was dropping individual partner metrics for compensation in favor of team-based and client-oriented metrics. Many competitor firms, especially those with dominant origination credit metrics, must be worried that Linklaters is right.

Compensation schemes that recognize a broad spectrum of partner performance do exist, but they have been slow to penetrate the AmLaw 100. Just as competency models were built on what we needed to see in associate development, partner performance models will grow from what we need in modern partners. And that means more than individual financial performance.

These are typical categories that we have developed for creating a partner-performance compensation scheme. I have provided a sample performance metric for each:

• Financial Performance: Partner managed above-average (associate and other) billable hours compared to practice group.
• Business Development: Partner participated in x formal client pitches and shared in a successful outcome in y of those pitches. (In compensation parlance, we term these performance measures [x] and outcome measures [y]).
• Leading People and Groups: Partner was the lead for running legal project management training in his practice group. The result was improved management and billing for three key litigation clients and reduction of write-offs. Net revenue per billable hour also improved.
• Client Relations: Partner led a client team that produced 20% greater revenue (year-to-year) from that client. Her specific leadership activities were: etc., etc. Client satisfaction, as measured in a year-end interview, improved over prior year.
• Firm Building: Pursuant to firm policy, partner transitioned client work valued at $3.2 million to other partners or teams. This was the highest value transitioned in the firm last year.

What do you notice about each of the partner performances above? First, they all involve data that has to be tracked all year, and is often compared year over year. Second, they are all specific; there are no sweeping generalizations such as “active at business development” or “well liked by clients.” Third, financial success and profitability are baked into performance measures that also have a team feature. While it is not always possible to connect a financial outcome, we find that credible measures must at least aim in the direction of firm building and financial success for all.

Is a partner-performance compensation system in your future? Given the expectations of clients and the increasing number of junior partners who were promoted in competency models, we think the answer could be “Yes.”