In an article for the upcoming issue of the National Law Journal  (NLJ) posted yesterday on their site, law firms are not taking their own advice when it comes to arbitration clauses in employment disputes.

Is this a case of what's good for the goose isn't good for the gander?  Why would arbitration be a good idea for other businesses but not good for law firms?  The answer brings into question the utility of arbitration. 

The arguments for arbitration come from those who have been burned in litigation.  Litigation can have you sitting in front of a jury that likely has no experience in the subject matter at hand and may in fact have motives other than the subject matter at hand to deliver a large award to a plaintiff.   Arbitrators, on the other hand, are picked from within the industry from which the dispute arises and ostensibly provide a more fair, though equally binding, resolution at less cost than litigation.  Where litigation can hinge on perception, arbitration decisions are meant to be grounded in experience-laden fact.

According to the NLJ story, however, only 10% of 200 law firm respondents to a 2003 survey had "mandatory arbitration in place".  I assume this means that equity partners were bound by it through the partner agreement and that other employees were bound by it as a condition of employment, though it isn't specified in the article.  One reason cited is that arbitration clauses may have a detrimental effect on the workplace.  Said a partner with DLA Piper, "Your attorneys can perceive that you are materially changing their position vis-a-vis the firm and attempting to circumscribe the rights they might otherwise have."

I believe that statement holds true to any situation where arbitration exists, not just when applicable to law firms.  Any other reason to not have them?  The article paraphrased a partner in the New York office of Greenberg Traurig, writing "Arbitration [] no longer offers the benefits of a speedier, cheaper resolution, as proceedings have become bogged down in discovery and quasi-motion work that mirrors litigation."

If that is truly the case, then arbitration has a gloomy future indeed, and not just with law firms.  I brought up the article to an attorney I know who defends clients in arbitration and he told me some of his concerns with it:

• Arbitration has become very inefficient, with no control over evidence admission (ie, evidence can come in at any time);
• The arbitrators do not have the same fear of appeal that judges do and thus are unafraid to ignore precedent;
• The quality of arbitrators has declined.

This indicates some serious problems with the arbitation system for dispute resolution.  As the attorney I spoke with said, "Our clients used arbitration to get away from runaway juries.  Now they are going back to the courts to get away from runaway arbitrators".

We have begun taking submissions for the 2008 Law Firm Economic Survey.  If your firm is interested in participating, please contact Brian by clicking here.

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Goals-based strategic planning takes a different tact than a "basic" strategic plan in that there is a singular focus by which the firm sets goals.  Focusing on financial goals is more manageable and attainable than the comprehensive strategic plan, but requires attention and accountability nonetheless.  Aspects of goals-based planning include:

1. Identifying key performance indicators that affect profitability
2. Developing goals for each indicator
3. Develop a budget based on the goals
4. Forecast earnings based on the budget
5. Measure and adjust

Identifying key performance indicators that affect profitability  - The key drivers to profit include leverage, rate, realization, productivity, margin and cash flow.  Firms may also want to include other indirect drivers such as client development (relationship building), "firm citizenship", etc. that may not have a direct impact on profitability, but are part of the core values that the firm holds.

Developing goals for each indicator - goals are particular to each fee earner but in total should reflect the financial targets for the equity partners.  Each goal should reflect the capabilities of the fee earner and the realities of the market.  For example, productivity targets may reasonably be set to 1,800 hours per year but setting the hourly billing rate at $350 may be unreasonable for a second year associate who works exclusively in insurance defense.  Set goals that are attainable.

Develop a budget based on the goals - Budgeting simply states your goals in a measurable way.  Fee earner budgets measure your productivity; client budgets measure your efficiency; expense budgets measure your spending.

Forecast earnings based on the budget - Forecasting models your budgets so that you can predict the results.  It isn't enough to just state goals. Forecasting allows you to see what the bottom line will be if you meet your goals.  If the bottom line isn't what you wanted, adjust the budgets until the forecast is agreeable.  Most businesses forecast annually with quarterly reviews.  During the quarterly review, the forecast can be adjusted based on the actuals.  If business is thriving, you can increase your forecast - if business is down, you can reduce the expectation set in your annual forecast.

Measure and adjust - like anything else you implement in the firm, you must measure performance and be willing to adjust if needed.

We have begun taking submissions for the 2008 Law Firm Economic Survey.  If your firm is interested in participating, please contact Brian by clicking here.

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I have suggested utilizing a non-equity partnership tier as a way to reward attorneys who are not yet ready for firm ownership.  Jim Cotterman has made an argument against it.  In my assessment, non-equity partnership can be a tier to place attorneys who excel in some things, such as working files, but don't have the skills to bring in new clients or matters or don't have the requisite discipline to be a firm owner.  Cotterman, however argues that non-equity partner tiers can end up being dumping grounds for the mediocre.

Cotterman cites a May 2006 study, An Empirical Study of Single-tier Vs. Two-tier Partnerships in the AmLaw 200, by Professor William Henderson at the Indiana School of Law.  The study documents that average per equity partner income in single tiered partnerships are significantly higher than two-tiered partnership firms.  The study noted:

The higher profitability of single-tier firms appears to be a function of higher levels of prestige, which enable single-tier firms to (a) attract and retain a more lucrative client base, and (b) run a more rigorous promotion-to-partnership tournament in which associates work longer hours and are less secure in their futures with the firm. 

Cotterman does believe there are certain situations where establishing income partners could be a good idea, including the reasons I mention above.  How do you feel about this?  In the 2008 Law Firm Economic Survey, we are asking respondents if they have a non-equity partnership system in place.  With this information, we will be able to determine whether equity partners in two-tiered partnership firms make more or less than those in one-tier firms.  It will be interesting to see if our results, which focus on small and mid-size law firms, mimic or contrast the findings in the Amlaw 200.

We have begun taking submissions for the 2008 Law Firm Economic Survey.  If your firm is interested in participating, please contact Brian by clicking here.

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We will soon start accepting submissions for the 2008 Law Firm Economic Survey.  This is our 3rd year to conduct the survey and in two short years we have created the largest survey of its kind focused on the mid-sized law firm.  Our survey serves several purposes, including but not limited to:

• Providing a measure of annual performance for mid-sized law firms based on per-partner income;
• Validating the core profit drivers that affect per-partner income;
• Providing expert analysis and content for managers to help increase per-partner income.

This year we are adding a focus on client development activities.  In our 2007 survey, 25% of managing partners responded that marketing and business development activities were their firm's best ways to achieve higher profitability.  In the 2008 survey we are asking managing partners what marketing and business development activities they utilize and how effective each are.

We are also asking questions regarding rate as it pertains to practice area.  I have had more questions regarding what firms charge for specific industries than any other finance-related question.  Attorneys want to know whether they are charging the appropriate market rate for their specific industry.  Since each industry can be pretty specific, we have chosen some broad practice areas that we hope will give firm leaders some insight into pricing. 

We are also hoping to do more regional breakdowns by rate, utilization, margin, leverage, etc.; another area in which we receive many requests.  Of course, the main focus of the survey will remain the law firm business model and the key profit drivers that affect per-partner income.

The survey will be broken down into two main parts:  the first part requires financial data and will take some time to assemble since there will be questions regarding 2007 year end numbers (such as standard blended rate by equity partners, non-equity partners and associates, and paralegals).  We will be conducting this part by telephone to help respondents with any questions.  We hope this will also reduce the possibility of invalid responses.  There have been several instances of firms having their responses disqualified due to inaccurate numbers after we were unsuccessful in our attempts to contact them to correct the responses.  We believe the best time to validate responses is at the time of submission and hope the telephonic interview process will help in this regard.

The second part will be for managing partners/shareholders/directors/etc.  Because this part doesn't require financial data (and thus shouldn't require assistance to complete accurately), it will be offered as an online questionnaire to encourage participation by managing partners.

The survey is geared to mid-sized firms.  For us, that means firms from 5 to 100 fee earners (which includes partners, associates, paralegals and others who bill clients for their work).  Although we hope to broaden the scope of the survey in the future, this year we are only accepting submissions from firms in the United States.

All respondents who complete the survey will receive a complimentary copy of our 2007 Law Firm Economic Survey and 50% off the price of the 2008 Survey.  The price has not changed and is still $495, so the value for participating is approximately $750.  The cost of the survey at $495 is among the lowest (if not the lowest) in the industry.  Further, firms who also complete the Managing Partner section of the survey will be offered a summary benchmark comparison of their firm against other respondents.  The benchmarking comparison is valued at over $1,200. 

Due to the time it takes to compile the data and prepare the survey for release (which we hope will be mid-summer), we are only accepting submissions for a two month period and may stop accepting submissions at any time after we reach our target of 375 respondents.  If you would like to participate in the 2008 Law Firm Economic Survey, please email me by clicking here and fill out the email request.

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The 5 key performance indicators all law firms should measure are:

• Rate
• Realization
• Utilization/ Productivity
• Leverage
• Margin

This week each day I will focus on one of the above. Today the focus is on leverage.

Head count leverage is by far the most difficult indicator to change. Hiring new associates involves much risk, plus you not only need to have the workload, you have to have partners who are willing to share that workload. Some previous posts related to leverage are What Is Leverage?, Best Law Firm Practices for Increasing Leverage, Handling Complexities of Law Firm Leverage, Billable Hours vs. Head Count Leverage In Law Firms, and Leverage Can Help and Hurt Law Firms.

 

The two types of leverage that will be the subject of this article are head count leverage and billable hour leverage. Head count leverage is the ratio of all non-equity partner fee earners to equity partners. Billable hour leverage is the total sum of all non-equity partner fee earner billable hours divided by the total billable hours of equity partners. The goal is to increase leverage if your partners have reached or exceeded the target billable hour threshold per year. What that number is varies from firm to firm, but in the 2007 Law Firm Economic Survey by LexisNexis , we used a baseline of 1,800 billable hours. I consider 2,000 hours (40 hours per week based on a 50 week work year) as the maximum reasonable output that one should expect from a fee earner. Of that, 4 hours per week can be reasonably dedicated to non-billable activities. As so many who argue for alternative fee arrangements, there are only so many hours an individual may work. After reaching this threshold, it is imperative that work is passed to another fee earner if you want to increase income over the long term (ie, firm growth). Increasing the headcount of non-equity fee earners to handle accretive work (as opposed to absorbing work that could be handled by others) is central in making leverage work to increase income.

 

According to the 2007 LexisNexis survey, partners are still billing more than associates but continue to project that they will pass work on and reduce their own workload. It appears talking about it is easier than doing it.

 

Head count leverage is obviously risky if you don't have full utilization of your existing fee earners. If you add staff before full utilization, you are merely absorbing someone else's work - a sure way to lower profits. Plans to increase head count leverage are discussed in years, not months. First and foremost there must be a need. Otherwise, it isn't going to benefit the firm. Still, if used correctly, increasing leverage will increase partner income. The best performing firms in the 2007 LexisNexis survey also had the highest head count leverage.

 

 

The best performing firms also had the highest billable hour leverage. This is where firms can make immediate changes and get results measured in months. The key is measuring fee earner productivity. In mid-size firms, partners typically outwork the associates. In order to benefit from leverage (whether it be head count or billable hour leverage), associated must be fully utilized. Before I go any further, let me clarify what I mean by "fully utilized". It doesn't mean "work the suckers until they keel over". It means determining what the maximum amount of billable hours should be (governed by firm culture and reasonable expectations) and don't hire a single person until associates reach that threshold consistently. The whining about associates being overworked may be true in biglaw, but it doesn't appear to exist in mid-sized firms. In mid-size firms, partners are the overworked ones and most don't complain. Finding young associates who have proper work ethic is more the concern (as one managing partner told me recently, "we can't find associates that want to work!") but that is a topic for another article.

 

What are some ways to increase billable hour leverage?

• Increase paralegal hours or don't retain them. Paralegals are chronically underutilized. If you don't intend on using them, don't hire them. If you only have 600 hours of billable work for a paralegal and your associates are billing 1,300 hours, the paralegal is lowering both productivity and effective rate.
• Introduce partner caps on billable hours. This is one I expect will be well-received by work hoarders. The idea is to set a maximum annual billable hour requirement - once reached, all further work must go to client development and all billable work must be shifted to available resources. This is a drastic measure and should be instituted only to initiate change when other attempts at shifting workload have failed. It is not feasible over the long term and in firms that have a lockstep compensation system it isn't a good idea period. However, excessive workload is an important requirement to increasing leverage. Client development is key to bringing in more work and partners are in the best position to do rainmaking activities. Whatever it takes to get partners to act like owners of a company (not a confederation of sole proprietors) is worth trying.
• Mentoring activities. Mentoring is a nonbillable but crucial activity. Encouraging mentoring will force partners to do things besides bill time - things that will ultimately make the firm more competitive and profitable. Mentoring is an art not used enough and associates who are properly mentored are in a better position to succeed and develop into good future partners. The work that would have been done by the partner will then get shifted to the associate. Partners should focus on doing work that demands the highest rate so that there isn't as much of a profit hit when implementing mentorship programs.
• Change the criteria for achieving partnership status. Do away with lockstep compensation and similar paths to partnership. In its place create compensation plans based not only on billable work but firm citizenship. Introduce non-equity partnership programs that provide a place for excellent associates who may not be good owners (ie, don't have the drive or talent for client development and management - ie, grinders).
• Change your compensation plan to reward not only billable activities, but non-billable activities. Make shifting workload with mentoring a measurable performance indicator for compensation purposes.

It takes planning to make leverage work to improve profits. Determine where you want to be in terms of fee earner headcount. Look at where you are today in terms of client development. Look at where you are in utilizing your non-equity fee earners. Make your objectives clear and measurable. Track them - and hold everyone accountable for the success of the plan.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

 

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"Is the billable hour dead, as many like to proclaim (whether wistfully or presciently?)" So starts the Executive Summary for the 2007 ALM Billing Rates & Practices Survey. The relentless assault against the hapless billable hour continues. Here is yet another blog post arguing against hourly billing. Yet if you look at billing rates, they continue to increase. The 2007 ALM Billing Rates & Practices confirms this, but also drills down into respondent's use of alternative fee arrangements.

According to the ALM survey, the average billing rate nationally is $240. This is in line with the 2007 Law Firm Economic Survey from LexisNexis, where nationally, attorney rates were at $249 (broken down: equity partner rates were at $263 and non-equity partners billed at $235 on average). In the ALM survey, "[a]ll but a small percentage were the leader, managing partner, shareholder or owner of their firm", so I didn't include the firm effective rate that includes associate and paralegal rates in calculating the $249 (for those of you thumbing through the LexisNexis survey). Only 8% of the ALM respondents were associates, so it may very well be that average rates were lowered to $240 in the ALM survey by the associates (who in the LexisNexis survey billed at $175 per hour).

The survey is heavily weighted to small firms, with about a third of respondents being solo practitioners and 58% from "small firms" defined as between 2 and 39 attorneys. Why ALM decided to include mid-sized firms (Juris defines mid-size to include firms with attorneys with over 10 attorneys) in the small firm category, I don't know, but it might be due to a small amount of respondents in that 11-39 range.

As further comparison, the average national billing rate for equity and non-equity partners in the 2007 Altman Weil survey was $315. The National Law Journal Billing Survey partner average was $427. Both the Altman Weil and NLJ surveys target larger firms.

One of the observations of the survey was that size of the law firm matters and the above figures certainly indicate this. However, in the LexisNexis survey, the observation was different: it isn't the size that matters, but "that law firms that outperform with regard to per-partner income do so because they excel in performance on the key law firm profit drivers." The ALM Billing survey doesn't profile the firms for per-partner income and thus only looks at part of the picture.

In the chart above, each quartile was ranked for the following key profit drivers: productivity (billable hours), leverage, billing realization, effective rate, and operating margin. The highest performing firms ranked the lowest in all of the indicators.

Size, on the other hand, didn't make as much of a difference. For example, the per partner income of the top performing firms with 25 or more attorneys in the LexisNexis survey was $609,548. Income per partner for firms with 11 to 24 in the top quartile was $548,557 and with 10 or fewer attorneys, $512,896. However, the difference between quartile 1 and 2 across all sizes is substantial: $325,986, $322,876, and $294,871 respectively. While there is less than $100,000 that separates the smallest surveyed firms from the largest ones, there is nearly $300,000 difference between quartile 1 and 2 across firms of all sizes.

Which brings us back to the ALM Billing & Practices Survey. 88% of respondents to the 2007 ALM Billing Rates & Practices Survey reported that they offer "alternatives" to the billable hour and it made up an average of 37% of their revenues. That is a pretty substantial number. Given that the survey is made up of smaller firms, you may be tempted to conclude that smaller firms are moving away from the billable hour in order to compete better with larger firms.

That may well be the case, but it is just as likely that some small firms that continue to not operate like a business could be getting caught up in a trend that in the long run will drop their profits even lower while the solo practitioners next door is making half a million. If you don't measure performance, you won't know.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

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The question of leverage is becoming more complicated given the increasing use of part-time lawyers and those working flexible schedules. Likewise, a pure head count approach where a firm underutilizes non-partner lawyers produces a misleading result.

 

William Johnston and Kristin Stark of Hildebrandt International address the leverage and underutilization issue in their paper titled Are We Approaching a Profitability Plateau?

 

“While partner/associate leverage is widely regarded as one of the drivers of economic performance (much like realization, productivity, etc.), leverage of billable hours is more important and should be given greater attention than leverage based on body count.  Leverage is often stated as the ratio of non-equity lawyers to equity partners; economic leverage focuses on the total billable hours each group works.  A surprising number of firms, including some of the largest firms in the country, have solid leverage based on body count, but only mediocre leverage when based on billable hours.  These firms should reevaluate their use of leverage. Leverage is only positive when you can keep the timekeepers busy. After all, having a high associate-to-partner ratio is fairly meaningless if the associates are underutilized. Firms where 'body count' leverage far exceeds billable hour leverage typically have a large number of lawyers who neither work very hard as a working attorney nor generate significant business for the firm.  Successful firms have the courage to take action when lawyers under perform, including counseling lawyers out of the firm.”    

 

To see what the authors are talking about, compute your firm’s body count leverage and then compute the ratio of non-partner billable hours to partner hours.  To illustrate, the related numbers for a composite of all survived firms as determined by the 2006 Juris Law Firm Economic Survey were as follows:

 

            Partners: 12

            Associates: 12

            Leverage based on Body Count 1:1

 

            Partner hours:  19,956

            Associate hours: 17,724

            Leverage based on hours: 0.89:1

 

While the body count leverage is 1 to 1, associates' hours were 89 percent of those produced by a partner, reaffirming the chronic underutilization of associates in midrange firms.  

 

Morepartnerincome differs with the Hildebrandt team when it comes to corrective steps.  Conditions on the ground may, in some cases, warrant thinning the law firm ranks of under-producing lawyers. However,  spotty cases of attorneys who are inclined not to “work very hard” cannot account for across-the-board low body count leverage and even lower hourly leverage among 75 percent of midsized law firms. The blame rests not on lazy lawyers, but on law firm partners who hoard work at the expense of delegation and business development.  Chopping heads is a short-term fix to stop the blood flow. The long-term solution is improved scheduling and delegation coupled with increased partner emphasis on business development, recruiting, and association development.

 

Back to the issue of measuring leverage, the issue of relying on body count leverage alone raised by the Hildebrandt authors illustrates why sound management requires a balanced approach in using law firm performance metrics.  Leverage, utilization, price, realization, and margin must all be considered.  Top performing law firms score highly in all metric categories.  When it comes to measuring leverage, part-time and flex schedule attorneys add an additional complication. One simplifying technique is to use non-equity equivalents in computing traditional body count leverage.  Two half-time associates equal one non-equity equivalent, for example. When using equivalents, the fractional measure should be based on compensation not on the billable hours that part-timers generate.  If a flex hour attorney is costing you two-thirds of a comparable associate, they are two-thirds of a non-equity equivalent, even if they are producing at the annual level of 500 or 1500 hours. 

  

Morepartnerincome.com is sponsored by Juris, Inc.  For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

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Altman Weil has been conducting an annual Survey of Law Firm Economics since 1972. Its survey for 2005 contains information from 285 law firms. The survey indicates associate income gains outpaced increases in partner compensation. Given the associate compensation bump occurring in the current year, 2006 is likely to show more of the same. Altman Weil slices and dices their annual survey in many ways, and it has been one of the more popular sources for benchmarking one’s own performance against others. You can read more about the survey in their August news release or purchase the survey by going to the Altman Weil Publications, Inc. product page.

When you compare survey results, there is always a little “apples and oranges” problem because different surveys slice things differently. Nevertheless, I thought it would be interesting to compare some of the Altman Weil news release numbers to those in the Juris® Law Firm Economic Survey. The Juris survey for 2005 combined information from 274 firms compared to the 285 in Altman Weil’s, so the sample sizes are the same for all practical purposes. The Juris survey does differ through its emphasis on midsized law firms; whereas, Altman Weil's survey includes firms with 150+ attorneys. The billing rate and billing hours reported in the news release for partners was for equity partners with 21+ years of experience and for associates with 4-5 years of experience.

Partner compensation from the Juris survey is the average of all firms surveyed. The top quartile in the Juris survey earned more than twice the average. What is striking is that midsized firm partners are on a par with firms in the Altman Weil survey as far as compensation is concerned, but midsized firms appear to be significantly more competitive in terms of billing rates. It follows that they must have a materially lower cost structure given comparable partner compensation numbers. The implication is that midsized firms have competitive pricing for competing with large firms and may very well have more pricing increase room.

Partners are working harder in midsized firms surveyed by Juris, Inc., and they are less skilled at fully utilizing associates. Improvements in scheduling and delegation would fall directly to the bottom line, partner compensation, for midsized firms.

Considering the lower billing rates and the lower associate billable hours, in the Juris survey compared to the Altman Weil news release numbers, one must conclude that midsized firms have both available capacity and the opportunity to improve pricing. Improving either or both would materially increase partner income.

You can purchase or learn more about the Juris survey by going toJuris® Law Firm Economic Survey.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.
 

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The Metropolitan Corporate Counsel reporting on the spring meeting of the ABA’s section of Internal Law gave considerable coverage to the comments of Tower C. Snow, Jr. of Clifford Chance. Mr. Snow was part of a panel discussion on the evolution of the profession and the practice of law.

Mr. Snow admonished attendees to look to their clients to understand where the profession is going. Mr. Snow’s predictions on law firms 20 years in the future included the following.

• · There are likely to be four types of law firms:
  • 1. The global elite—handling the important work for the world's principal companies—highly profitable;
  • 2. The global mid-market firms—handling some of the important work for important global clients and with less favorable economics;
  • 3. Boutiques focused on specialized high-end work—few partners and extremely profitable;
  • 4. Regional firms, practice in specific geographical markets and focused on mid-market transactions.
• · Client pressure on fees will continue to increase.
• · New branch offices trend will decrease and closures of unprofitable branches will increase.
• · Ratio of non-equity to equity partners will increase
• · The need for capital will lead to more law firm failures, more law firm mergers, and some law firms will go public.
• · The strong will get stronger.
• · The rich will get richer. 

Madame Lagarde, the French Minister for Foreign Trade (and former Chair of Baker & McKenzie) also on the panel, sounded a note to counter "the rich get richer" remarks of Mr. Snow. As she concluded her remarks as a panelist, she reminded attendees, “We are members of a profession that is driven by the profit motive, but we also have a responsibility to build the legal system and the rule of law and to assist in making justice available to everyone.” …”We are not entitled to consider ourselves guardians of justice if we fail to meet this responsibility.”

Her comments are a reminder that our pursuit of morepartnerincome™ is to be achieved though effectiveness and efficiency—not on the backs of the consumers of legal services. Client pressures on fees are motivated by the desire to lower the cost of legal services, not to simply make services cheaper. Lower cost for clients through effectiveness and efficiency can be accomplished while, at the same time, increasing the income and wealth of law firm owners—the equity partners. It is all about working smarter, not cheaper.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

 

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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.

 

 Morepartnerincome.com is sponsored by Juris, Inc.  For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

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