Planning, Both Long and Short-Term, Can Help Make Sense of Your Firm's Direction

by Joel A. Rose

The evolutionary principal known as "survival of the fittest" is taking on increasing relevance as law firms compete for a sharply declining volume of profitable transactional work.

Managing partners and members of executive committees need to analyze their operations and adopt immediate -- one to two years -- and longer-range -- three years and longer -- goals for their firms to continue to thrive. Any managing partner who continues to rest on the laurels of his or her firm's past accomplishments, without adjusting to today's economic downturn, is placing their firm at risk.

Every firm should identify its longer-term objectives and define the qualities that are most important for its lawyers to embody in order to succeed. These qualities will differ from firm to firm, but the following is a representative list:

• Quality work and quality service, which are not viewed as the same thing by clients.

• Work ethic: how hard and smart the lawyers work.

• Multiplier effect: the ability and willingness of lawyers to make the most of themselves through business development; business management; delegation to other partners, associates and paralegals; and supervision of others.

• Specialization: the ability and willingness to develop a specialty, possibly by narrowing the scope of practice.

• Firm and practice management: the ability and willingness to play a leadership role.

• Team approach: the willingness to work with other people, not hoard work, or practice as a "lone ranger."

• Accountability: a willingness to follow the rules and to be held accountable for one's actions, both positive and negative.

Personal Goals

Personal goal-setting has been popular and effective in other professions and industries for many years. But lawyers have been slow to adopt the practice because they are afraid that the exercise will be a waste of time or will restrict how they practice.

As consultants, we still hear partners say, "I'm a partner, I can do as I damn well please." This attitude is not as prevalent as it was in the past, but it still exists and must be dealt with.

Partners should not feel threatened by personal goal setting. Quite the contrary, it allows the lawyers to focus on things that they most enjoy and for which they have shown a demonstrated aptitude. The primary purpose is to focus a partner's efforts on activities that help advance the firm's goals and to establish parameters for accountability and for evaluating the partner's performance. This requires the preparation of a personal work plan.

The work plan serves as an effective tool for communicating to the partner what is expected for the coming year. In effect, it is a written definition of an "acceptable contribution." When tracked properly, it also keeps management and the partner informed on a regular basis of whether the partner is performing as planned. When used properly, the model should eliminate surprises.

Performance compared to the model is only one of the criteria used in determining partner compensation. However, it may be the basis for allocating funds from an "extraordinary pool." Each partner should have significant input as to what is included in his/her work plan.

Preparing to Plan

Keep in mind that it is very difficult to achieve maximum benefit from the personal work plans in firms that have seniority or formula systems. Seniority-based systems offer the carrot -- usually the ability to live and remain with the firm -- but do not possess a stick as the motivator. Formula systems encourage partners to do what is necessary to make their numbers come out right, but sometimes at the expense of the objectives they are intended to promote. Compensation systems with sufficient flexibility, emphasizing the individual's total contribution to the firm, are the best systems for using the personal plans and achieving maximum results.

The format of a sample personal plan form is shown below. Do not put style over substance. The form should be tailored to complement the firm's goals in using the exercise. Guidelines for completing the model are incorporated into the below form.

The exercise requires partners to think about their targeted individual production and the non-billable activities they wish to pursue. In effect, the completed personal plan defines a partner's commitment to the firm for the coming year and establishes the guidelines for accountability.

The following procedure has proven effective for some firms.

A partner completes the form using approved guidelines. This requires the partner to develop personal goals and promotes a sense of proprietorship. The completed form is sent to the managing partner or to the partner's practice group chair for review. The managing partner or the practice group chair meets with the partner to discuss the model, consider alternatives, and eventually approve the model.

As part of a periodic review of the status of the plan, the managing partner or the practice group chair meets with each partner to discuss how well the partner is living up to the plan during the past year; their accomplishments and disappointments of the partner and possibly other partners; and to discuss and finalize the partner's performance model for the next year. The managing partner or the practice group chair has a final say as to how the plan reads.

The plans for all of the attorneys in the practice group are reviewed and approved by the practice area chair, the department head (if applicable) and finally by the managing partner. Members of the firm's management committees are given copies of all models. Department heads have copies of all the models of partners in their respective departments. Practice group chairs have copies of all the models of partners in their respective practice groups.

Simply setting these goals is not enough. Individual performance is tracked to ensure that partners meet their goals. To do that, the practice area chair or the managing partner must conduct a quarterly analysis to spot deficiencies before they get out of hand. Meetings must be held with deficient partners to discuss problems and possibly to amend their plans or their behavior.

Amendments should not be a common practice, although there may be situations where an adjustment is warranted. This helps eliminate the possibility of surprises at year-end.

Planning and Pay

There are two ways to utilize personal plans to assess performance in the compensation process.

First, the performance of a partner compared to their performance model should be a major factor in determining points/percentages (consider 3-5 years once you have the data).

Second, if the firm has an extraordinary performance bonus fund, performance that exceeds what is expected in the model should be used to identify extraordinary performance.

Extraordinary funds are quite popular today with many firms. There are numerous versions. However, several characteristics are common.

A percentage of anticipated funds or a specific amount of funds is set aside to ensure that partners who perform extremely well are rewarded. Some firms accumulate these funds throughout the year.

Even if the firm has a slow year, extraordinary funds can reward one or more partners if they have stand-out performances.

The fund provides an incentive to individual partners, and it allows the firm to reward a partner for an extraordinary contribution without having to make a large increase in points for what might be a one-time accomplishment.

A partner's performance compared to his/her model determines whether the partner is eligible to be considered to an award from the fund. By just meeting the model, the partner is unlikely to receive an award.

This fund is not a source of income for all partners. Only the partners who truly exceed their models are considered. Therefore, it is important for the awards to be large enough to explain. The minimum varies by firm, though we recommend the $10,000 - $25,000 range. Additional amounts should be in increments of $5,000.

It is not necessary to award any or all of the fund. Amounts that are not awarded from the fund are allocated to all partners based on their points/percentages.

What Is to Be Gained

Firms that are willing to spend the time required to use the performance models effectively have experienced numerous benefits.

The efforts of each partner are focused on those activities that are perceived by firm management to be in the best interests of the firm and each partner has a vested interest in their model.

Peer review is becoming more popular at the partner level and the model can serve as a partial guide.

Partners are more likely to accept more accountability when they participate in defining the parameters of their expected contributions.

The partner knows what is expected and it is more difficult for a partner to accuse the compensation committee of making up the rules as it goes when the partners helped design their personal plans.

The personal production aspect of the model is a target for the firm's projected gross revenues. Be careful how you use this information in your budgeting of expected fee income until you have some history of how individual partners perform compared to the models.

Addressing Objections

A few firms that have considered using the models have rejected them for a variety of reasons:

• We can't afford a one-year focus.

Those making this objection usually do not understand how to use the models. That there is a one-year focus is a valid objection if the model controls all aspects of compensation. However, the purpose of the models is to get the partners to set personal goals, improve accountability and to give those firms that want to use an extraordinary fund a system for determining what is extraordinary.

• It is excessively numbers-oriented.

This is a valid objection if the firm uses the personal production segment and only gives lip service to the other segments. One real value of the model is to customize non-billable time for each partner.

• Planning hinders flexibility.

Only lawyers would say this. I see this as nothing more than an excuse. Form should not control substance. There should be a lot of flexibility, if the process is used the way it should be.

• Planning hinders a team approach.

Under any system, some partners will hoard work, work outside their areas of expertise and not function as team players. It is management's responsibility to spot this problem and deal with it.

• Planning is too time-consuming.

It is true that this exercise does take a lot of time. However, this can be the most valuable time spent during the year, if the firm is sincere about implementation.

No compensation system will keep all partners happy all of the time. You are more likely to keep most partners happy most of the time if you use an exhaustive process (it is better to do too much than too little), communicate openly and honestly about contributions that are expected from the individual partners and let them know when their contributions are not at the level expected, and involve all partners in the process. Eliminate surprises.

©1999-2015 Joel A. Rose & Associates