March 21, 2006
Underperforming Equity Partners
Ed Wesemann posted an article on Creating Dominance dealing with underperforming equity partners. It is worth your time to read this. The post suggests that the firm needs to develop a standard (minimum performance level) and even gives an example method of analyzing and ranking the performance of your current partners.
The interesting twist is that once you chop off your current underperformers, you raise the standard of performance for those remaining and create a new class of underperformers. Of course, this assumes that one’s performance is to always be measured by the individual’s relative performance compared to peers. Whatever your feeling about judging performance based on the curve, Wesemann’s post gives you a powerful new way to look at your current equity partners.
If I recall correctly, it is David Mastier who talks about a hygienic level of performance. In other words, rather than always judging relative performance compared to peers, the firm should decide what a healthy level of performance is—the hygienic level. An equity partner that meets the hygienic level is considered a positive contributor to the firm. Compensation may vary to reflect different levels of performance above the hygienic level (up to a maximum point), and those that don’t make it to the hygienic level must move out of an equity partner position. Why would you set a maximum for awarding compensation for performance in selected areas (most often billable hours)? Because too much of a good thing can be destructive to the individual and his/her long-term success as a contributor to the firm. Too many billable hours means something is being neglected, either in the firm or in the partner’s life.
At any rate, Ed’s post, Looking Tall by Standing Next to Short People, is a must-read item.
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Filed under Compensation, HR, Partner Agreements by Tom Collins