how to create partner scorecards -...

Are All Partners Created Equal How to Create Partner Scorecards

Derek Schutz Director of Programs, Business of Law, Redwood Analytics [email protected]

1

Key Discussion Topics

1. Overview of Recent Trends

2. Historic Compensation Systems

3. What is a Scorecard?

4. Examples of Usage

5. What We Have Learned

2

Overview of Recent Trends

3

Changing Expectations

Yes – Permanent Change 2009 2012

Fewer equity partners 22.8% 67.6%

More contract lawyers 28.3% 66.2%

Reduced leverage 12.1% 57.7%

Smaller first year classes 11.4% 55.4%

Outsourcing legal work 11.5% 45.5%

20% 40% 60% 80%

2010

2011

2012

63.4%

68.4%

67.6%

Do you think fewer equity partners will

be a permanent trend going forward?

* Copyright 2012 Altman Weil, Inc.

4

Growth Options

What growth options, if any, will your law firm pursue in 2012?

0% 20% 40% 60% 80% 100%

Consider being acquired

Open new overseas office/s

Merger of equals

Open new US office/s

Acquire law firm/s

Acquire groups

Acquire laterals

6.4%

6.9%

10.9%

27.9%

29.5%

68.2%

92.3%

5.5%

2.3%

11.8%

13.2%

12.7%

8.2%

3.2%

Will Pursue Not Sure* Copyright 2012 Altman Weil, Inc.

5

Growth Trends

Page Title Top Growth Options 2010 2011 2012

Acquire laterals 85.3% 91.6% 92.3%

Acquire groups 54.8% 67.1% 68.2%

Acquire law firms 19.7% 23.0% 29.5%

Open new US office/s 17.6% 24.6% 27.9%

2012 Growth Options by Firm Size > 250 Lawyers

<= 250 Lawyers

Acquire laterals 89.7% 98.5%

Acquire groups 57.4% 93.8%

Open new US office/s 23.9% 37.5%

Acquire law firms 21.9% 47.7%

* Copyright 2012 Altman Weil, Inc.

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Who Makes Partner?

0%

5%

10%

15%

20%

25%

30%

0 12 24 36 48 60 72 84 96 108

Months From Hire

Law School Hires Lateral Hires

From a sample office

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In Summary:

Law Firms:

1. Are seeing fewer equity partners as a permanent trend

2. Do not have the partner turnover they would like

3. Have associates that are not incentivized like the past

4. Trying to mine the middle ground where they can grow appropriately

Some things to consider:

1. With a lack of associates looking to be the next leaders, how can a firm grow organically? What about succession planning?

2. How can successful lateral growth be maintained?

3. Partner demographics show aging populations, what is the plan?

4. How can law firms ensure continued success?

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How do we Encourage the “Right” Behavior?

You get what you pay for!

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Historic Compensation Systems

“Mission No.1 is to Preserve the Partnership”

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The Importance of a Proper Compensation System

Preserving Profitability = Preserving the

Partnership Preserving the Firm =

Profitability = Compensation Levels

Threshold for Happy Partners

=

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1. Equal Partnership

2. Team Compensation

3. Lock Step

4. Unit System

5. Eat What you Kill

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Equal Partnership

13

Team Compensation

14

Lock Step

15

Unit System

16

Eat What You Kill

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What kind of firm are you?

18

Scorecard Approach

First and Foremost:

You need to establish goals and metrics

that drive your firms stated strategy

1. You need a strategy

2. People need to know what it is

Secondly : 1. Establish the core metrics to be analyzed

2. Set realistic goals

3. Set stretch goals

4. Don’t hesitate to add subjective criteria and ranking associated

19

What is Your Strategy?

Recognize your strategy 1. Poll your partners 2. Ask your clients 3. Follow the money

Potential issues 1. Strategy and tactics are often confused 2. Contrasting priorities (geographic/practice area driven) 3. Failure to achieve strategic goals 4. Unrealistic expectations

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What is a Scorecard?

A structured performance management tool geared towards aligning behavior with desired

outcomes

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Simple Scorecard Output Goals

1. Easy to read/distribute document to determine individual strengths and weaknesses

2. Result that is easy compare to stated goals and peer groups

3. Automated output that can be updated/adapted as needed

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Simple Scorecard Output Goals

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Balanced Scorecard Goals – Kaplan & Norton

1. Translating the vision into operational goals

2. Communicating the vision and link it to individual performance

3. Business planning; index setting

4. Feedback and learning, and adjusting the strategy accordingly

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Partner Scorecard Goals – Law Firm Specific

1. Objectively measuring how partners are helping the firm meet its strategic goals

2. Consistently measuring partner performance a. Understanding where a partner excels or falls short can provide

insight into development plan

b. Changes overtime to the methodology will occur

3. Providing a tool that can help with goal setting and partner development

4. Providing a quantitative starting point for partner compensation determination (secondary)

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How to Determine Goals and Metrics

As owners of the firm, what are partners responsible for? On what criteria are

partners assessed?

Generating business for the firm

Managing client relationships

Understanding client needs

Performing legal work

Providing work to associates

Mentoring and supervising others

Managing matter and client profitability Being a team player

Being innovative/visionary

Expense management

Inventory management

Be a good lawyer

Go

al:

B

uil

d A

Su

sta

inab

le O

rgan

izati

on

Grow Firm

Revenue

Manage Drivers

of

Profitability

Deliver Value Balance Practice

Specialization &

Breadth

Exhibit Civic

Responsibility

Client Relationship

Management Operational Excellence

Quality outcomes

Efficient work

Expertise in key areas

Complementary products Support community

Enter selected new markets

Engage new clients

Increase client LTV

Utilization

Realization

Leverage

Margin/Yield

Matter

Management

Client

Relationship

Management

Operational

Excellence

Staffing

Project Management

Cross-selling

Trusted advisor

Rate setting

Intake

Cash flow optimization

Recruit & Retain

Talent

Succession

Planning

Create Efficiency

Through Technology

Attorney development Roles & accountabilities Knowledge management

What Would You Measure On a “Balanced” Scorecard?

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Metrics and Score Criteria

Each metric can carry

different weighting

28

Sample Output

28

29

Partner Scorecard

30

Partner Scorecard

2%

3%

7%

13%

20% 20%

12%

9%

6%

3%

2%

1%

2%

0% 0%

5%

10%

15%

20%

25%

0.6 - 1 1.1 - 1.5 1.6-2 2.1-2.5 2.6-3 3.1-3.5 3.6-4 4.1-4.5 4.6-5 5.1-5.5 5.6-6 6.1-6.5 6.6-7 7.1 -7.5

Previous Year Distribution by Score

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Example of Usage

32

Partner Metrics and Score Criteria

33

Different Weighting Examples

• Weighting should support the strategy of the firm and practice area

• Flexibility for setting weighting by section/department/partner type

Base Example Relative Weight Portion of

Total Score

Subjective 0x 0%

Hours Owned 2x 24%

Cross Sell Count 2x 24%

New Clients Orig 1.5x 18%

2 Yr Attrition 1.5x 18%

Hours Worked 1x 12%

Associate Capac .25x 3%

Realization 0 0%

PM Hours 0 0%

Client Development

Focus*

Relative Weight Portion of

Total Score

Subjective 0x 0%

Hours Owned 1x 12.5%

Cross Sell Count 2x 25%

New Clients Orig 3x 19%

2 Yr Attrition 2x 19%

Hours Worked 1x 12.5%

Associate Capac .5x 6%

Realization .5x 6%

PM Hours 0 0%

34

Different Weighting Examples

Base Example Relative

Weight

Portion of Total

Score

Score

Subjective 0x 0% 6

Hours

Owned

2x 24% 6

Cross Sell

Count

2x 24% 8

New Clients

Orig

1.5x 18% 8

2 Yr Attrition 1.5x 18% 7

Hours

Worked

1x 12% 6

Associate

Capac

.25x 3% 4

Realization 0 0% 5

PM Hours 0 0% 6

Client Development

Focus

Relative

Weight

Portion of

Total Score

Score

Subjective 0x 0% 6

Hours Owned 1x 24% 6

Cross Sell Count 2x 24% 8

New Clients Orig 3x 18% 8

2 Yr Attrition 2x 18% 7

Hours Worked 1x 12% 6

Associate Capac .5x 3% 4

Realization .5X 0% 5

PM Hours 0 0% 6

Weighted Score = 7.18 Weighted Score = 8.8

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Subjective criteria examples

How partners contribute to building the firm

Team Player

Innovation/vision

Training/Mentoring

Strong Manager (practice/office)

Overall Subjective Average

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Average Partner Score By Metric

0

1

2

3

4

5

6

7

8

AverageWeighted

Score

Average ofCross Sell

Count Score

Average ofHours OrigNew Clients

Score

Average ofTwo YearAttritionScore

Average ofHoursOwnedScore

Average ofRealization

Score

Average ofHours

WorkedScore

Average ofAssociateCapacity

Score

Practice 1

Practice 2

Practice 3

Practice 4

All Practices

Relative Weight: 2 0.5 1.5 1.0 1.0 1.5 0.5

37

0

0.25

0.5

0.75

1

1.25

1.5

1.75

2

Practice 1 Practice 2 Practice 3 Practice 4

Average Weighted Score

Average of Cross Sell Count Score

Average of Hours Origination NewClients Score

Average of Two Year AttritionScore

Average of Hours Owned Score

Average of Realization Score

Average of Hours Worked Score

Average of Associate CapacityScore

Normalized Scores by Practice

Total Score

Rank: 4 3 1 2

38

Putting Information to Use

Observation #1: One practice performed relatively well in terms of partner hours worked but relatively poorly in terms of associate capacity

Tactic: Assess whether work is being appropriately leveraged to associates or right-size these sections

39

0

0.25

0.5

0.75

1

1.25

1.5

1.75

2











Total Score

Rank: 4 3 1 2

40




Observation #2: Two practices perform well in terms of realization but relatively poorly in terms of hours worked.

Tactic: Look for opportunities for creative pricing to reduce capacity

41

0

0.25

0.5

0.75

1

1.25

1.5

1.75

2











Total Score

Rank: 4 3 1 2

42






Observation #3: One practice has partners that own a significant book of business and have excellent retention of the clients

Tactic: Cross breed best practices from these partners

43

0

0.25

0.5

0.75

1

1.25

1.5

1.75

2











Total Score

Rank: 4 3 1 2

44






Observation #3: One practice has partners that own a significant book of business and have excellent retention of the clients

Tactic: Cross breed best practices from these partners

Observation #4: One practice has partners that perform well on Cross Sell

Tactic: Emulate best practices across groups

45

0

0.25

0.5

0.75

1

1.25

1.5

1.75

2











Total Score

Rank: 4 3 1 2

46

Cross Sell Score Comparison

Numbers within each bar are the count of equity partners

28 equity partners lag

expectations for cross

selling

18 equity partners

meet expectations for

cross selling

11 equity partners

exceed expectations

for cross selling

28

3

22

6

18

3

14

3

11

0

2

0

0% 20% 40% 60% 80% 100%

Practice 1

Practice 2

Practice 3

Practice 4

Lags (0-3)

Meets Goal(6)

Excels (8-10)

47

Sample Output

47

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What We Have Learned

1. Not a “one size fits all” solution 2. Take the personal element out of it, use for business

development/strategy 3. Essential to have support from the top 4. Positioning is important (“scorecard” may not be

the best term!) 5. Alignment with firm and practice strategies 6. Not just a reporting exercise

49

What We Have Learned

1. Tie into business and strategic planning 2. Affects staffing plans for the future 3. Provides insight into strengths and weaknesses of the

firm 4. Reinforces the behavior of partners vested in firm

sustainability and growth 5. Use as a compensation tool is secondary

50

Parting Thoughts

1. Compensation MUST be tied to your firms strategic goals

2. No compensation system will appease everyone 3. Communicate, Communicate, Communicate 4. External sources WILL NOT solve your problem 5. Not everybody has the same skill set or wants the

same thing

51

Questions/Comments

Are All Partners Created Equal How to Create Partner Scorecard

Derek Schutz Director of Programs, Business of Law, Redwood Analytics [email protected]

how to create partner scorecards -...

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