James Tsolakis of The Royal Bank of Scotland published his annual report, A perspective on the legal market, in March. In it, he says UK firms have 5% overcapacity in fee-earner resources and has told LB that firms need to address this issue at partner level. The report also says that the success of new partner compensation models that align compensation with performance depends on ‘effective partner appraisal systems’.
According to the report, while the need to reward good behaviour is a crucial incentive, so is ‘recognition of and response to sustained underperformance’.
How do firms deal with underperformance aside from simply not rewarding it?
At partner level, handling those who are not pulling their weight, either by missing billing targets or failing to effectively develop business, is a taboo subject.
Many management figures will talk about ‘meritocratic remuneration structures’ but few, unsurprisingly, mention de-equitising those not making an appropriate contribution to the business. Many traditionalists will argue that this kind of behaviour goes against the grain of the entire partnership ethos.
The key is to ensure that performance management is a continual process.
One solution is to make the award of bonuses as scientific, dispassionate and transparent as possible. Making sure that everyone in the partnership knows why X has not received a bonus and why others have received theirs could encourage those underperformers to raise their game, or seek further training or redeployment. It could even encourage them to leave, which although unfortunate could ultimately benefit everyone.
Assessing partner performance is by its very nature a short-term exercise and management has become hamstrung by the need to consider the long-term contribution of the partner. While it is important to look beyond pure financial targets and assess the contribution of a partner to the firm in general, how long does goodwill last and is there a statute of limitations on past glories?
The key is to ensure that performance management is a continual process so that partners are made aware of what is required of them. Ultimately when a partner is eventually asked to leave, it shouldn’t really come as a shock.
Sustained underperformance cannot be left to fester. But perhaps the solution lies at the root of the problem and firms need to be more careful about promotions and making a lateral hire in the first place. Slaughter and May, with its well-documented ‘up or out’ policy, doesn’t talk about large-scale partnership restructurings. Perhaps by not being an LLP, it doesn’t need to be too transparent. Or it simply doesn’t take a cyclical approach, hiring partners voraciously when the market is buoyant, leaving it exposed when the tide goes out.