Remuneration systems often only reward lawyers for what they bill, rather than compensating them for taking on leadership tasks, says Redstone’s Moray McLaren
Living, as we are, through times of turmoil, our need for good leaders is greater than ever. But why aren’t the brightest and best in professional services rising to the challenge? When firms say they reward the contribution of leaders, is this true?
During Redstone Consultants’ partner performance workshops, we often start by asking a partnership or leadership group what they expect from each other as partners and what they want each other to spend their time doing. “Making money” is the first response. After a period of silence, typically a second person will say: “Finding new clients for the firm?” Then a third will chip in: “Recruiting and training the best young lawyers?” By now we are on a roll. “Coaching and mentoring the future partners,” suggests another.
Within the professions, contributing to firm-wide initiatives – as opposed to individually pursuing revenue – is sometimes viewed as a distraction from fee-earning. But 20 or 30 minutes into a workshop, we have many pages of flip charts filled with “other stuff” that is key to a firm´s success.
Next, we often follow-up with a second question: what activity is your current remuneration system rewarding? Again the first answer comes quickly: “The amount of fees you bill.” After which there may again be a scratching of heads. By this stage in the workshop, we will have one long list of management or leadership tasks – such as firm-wide recruitment, business development, coaching and mentoring, developing knowledge, financial management, strategy and so on – that partners have said are ‘mission critical’ to their firm. We will also have a much shorter list of what partners feel is being rewarded, that is, bringing in money.
Unwilling to lead?
Do remuneration systems typically reward behaviour important to a firm? The answer is ‘no’. During a recent board meeting – where we were helping a major law firm address very difficult issues – the chairman closed with the comment: “Now let’s get back to some real work!” What had we been doing for the last three hours? Is it surprising the best professionals are often unwilling to take leadership roles?
In firms whose partner remuneration is wholly or partly merit-based, managers work hard to distribute profits on an equitable basis that rewards behaviours they want to encourage. Sadly, partners often believe, for all the management hype, only personal billings count. Analysis of what is rewarded often reveals disparities between management’s intentions and the effect of the remuneration.
The solution? We have helped firms introduce a ‘balanced scorecard’ approach. A scorecard sets goals, not just for billings, but for the wider financial performance of the firm. It also sets targets for the retention and development of talent, quality of client service and participation in firm-wide investments such as business development, recruitment, knowledge management and leadership.
A well-designed scorecard establishes clear expectations of partners beyond billable hours and enables the remuneration committee to assess performance with a wider set of metrics. But this must be simple to be effective – some firms tie themselves in knots with excessive management reporting. Partners must agree on the firm’s key priorities and then, by developing the scorecard, they can be clearer about partners’ contribution to them. Partner performance, career development, promotions and profit share, can then be better related to their contribution to the firm’s success.
Our starting point is an analysis of the firm´s remuneration system. We share that with partners during a workshop – they then review our analysis, push back where they disagree and then develop a consensus. Firstly, on what works well, then secondly on where the problems are. We interview each partner confidentially in advance – many don’t like speaking openly about their concerns, enabling us to pose difficult questions and, if required, point to ‘elephants in the room’. Freed from suspicion they are pursuing their own agenda, the leadership can participate fully in the debate.
Based on the outputs, the second stage is to present options and run the numbers to see how each would affect different partner groups. After a lot of internal debate, the final workshop allows partners to work through options before making a decision.
In conclusion, these are issues that can be resolved. Leadership can be appropriately rewarded and those that do this well can be encouraged to “do the right thing for the team”.
Moray McLaren is a law firm consultant and chairman of the the IBA´s Law Firm Management Committee Strategy Group. He can be contacted at firstname.lastname@example.org