To deliver their business strategies law firms need to secure and retain the right level and mix of partner talent – and encourage partners to behave in such a way that delivers the strategy. This article sets out how firms view this challenge as being principally about the intrinsic aspects of reward and how, through remuneration and performance management, they can deliver effective talent management and motivation.
In addressing the first issue we present the key findings of our recent research into talent management within the sector. Our survey of 25 of the top 100 firms addressed talent management at all levels, including those of salaried and equity partner. The findings show that firms consider intrinsic reward to be the key attraction and retention lever for partner-level talent.
Currently, the key talent challenges are perceived to be managing performance within the equity group to ensure fairness, the retention of a strong performance ethos and promoting the ‘commerciality’ of partner behaviour.
Despite this view, one area of significant activity over the past 12 months has been the review of partner remuneration structures – very much an extrinsic element of reward. A number of firms have been reviewing the way in which they manage and reward their partner groups and are moving towards more structured guidance in respect of partner contribution and performance.
A number of methods are used to identify partner talent, including performance appraisal, partner nomination and financial performance. The more sophisticated firms track partner performance over a wider range of areas of contribution, including financial performance and management, fee ;generation, ;brand, ;talent, ;risk, leadership and management.
Only a small number of firms use formal assessment centres, in contrast with the wider professional services sector, where more formalised processes commonly apply. However, a number of our survey participants indicated that they were looking to introduce revised admission and appraisal processes over the next 12 months
Attracting and motivating talent
Intrinsic reward (for example, the quality of client work and career progression opportunities) is perceived to be by far the most important selling point for attracting talent. The style and culture of the firm is felt to be at least as important as levels of remuneration. For salaried partners, the prospect of equity partnership is the second-greatest attraction.
Despite the importance of intrinsic motivators, the remuneration structure remains vital. If profit per equity partner is relatively low and lockstep progression and merit awards are unclear, then the motivation built through intrinsic measures can be undermined.
Firms ;should ;have ;three ;talent management priorities. The first is that a specific individual should be responsible for talent across the firm. For the equity partner group, this is clearly the managing partner. The second priority is developing and managing future partner talent and linking this activity to specific training and development. Finally, firms should be using a range of levers in addition to remuneration.
Partner remuneration structures
One of the areas identified for future activity by the survey is partner remuneration. An effective remuneration structure and performance management process will combine to:
• define what partners need to contribute to add equity value;
• be flexible to reflect partners with different competencies;
• be fair and transparent;
• have good governance with opportunities for partners to present their achievements;
• differentiate between good and poor performers and manage the latter effectively; and
• take a longer-term view of performance.
Many law firms have amended their remuneration structures in the past 12-24 months, for instance by introducing a higher element of merit in an attempt to encourage more junior partners, who can sometimes deliver proportionately more equity value than some of the more senior partners.
Many firms are getting smarter in defining a wider set of areas of contribution. This incorporates not just financial and business development (origination, fees generated), but also key areas such as clients served, talent, risk and brand. Measurement of contribution is important, as the ownership of fees generated can be a point of contention unless the process for identification is clear and felt to be fair.
The consistency and fairness of approach is another key issue. Most firms have remuneration or audit committees to ensure the agreed process is followed. Dealing effectively with the poor performer and ensuring that performance and reward are fair is critical. Linked to this is transparency – most firms publish all equity partner profit-sharing so everyone knows what others are receiving.
Intrinsic reward plays a significant role in talent management and can make a clear difference to partner attraction, retention and motivation. However, a successful partner remuneration structure will contribute to both effective talent management and the delivery of business strategy.
Bill Cohen is a partner and Jon Clark a director in the professional practices group at Deloitte