How To Create Partner Scorecards

Are All Partners Created EqualHow to Create Partner ScorecardsDerek SchutzDirector of Programs, Business of Law,Redwood AnalyticsDerek.Schutz@lexisnexis.com

Key Discussion Topics1.2.3.4.5.Overview of Recent TrendsHistoric Compensation SystemsWhat is a Scorecard?Examples of UsageWhat We Have Learned1

Overview of Recent Trends2

Changing ExpectationsYes – Permanent Change2009 2012Fewer equity partners22.8%67.6%More contract lawyers28.3%66.2%Reduced leverage12.1%57.7%Smaller first year classes11.4%55.4%Outsourcing legal work11.5%45.5%Do you think fewer equity partners willbe a permanent trend going forward?67.6%201268.4%201163.4%201020%40%60%80%* Copyright 2012 Altman Weil, Inc.3

Growth OptionsWhat growth options, if any, will your law firm pursue in 2012?92.3%Acquire laterals68.2%Acquire groups29.5%Acquire law firm/sMerger of equals10.9%Open new overseas office/s6.9%Consider being acquired6.4%0%8.2%12.7%27.9%Open new US office/s* Copyright 2012 Altman Weil, Inc.3.2%13.2%11.8%2.3%5.5%20%Will Pursue40%60%80%100%Not Sure4

Growth TrendsTopGrowthOptionsPageTitle201020112012Acquire laterals85.3%91.6%92.3%Acquire groups54.8%67.1%68.2%Acquire law firms19.7%23.0%29.5%Open new US office/s17.6%24.6%27.9%2012 Growth Options by Firm Size 250Lawyers 250LawyersAcquire laterals89.7%98.5%Acquire groups57.4%93.8%Open new US office/s23.9%37.5%Acquire law firms21.9%47.7%* Copyright 2012 Altman Weil, Inc.5

Who Makes Partner?From a sample officeLaw School HiresLateral Hires30%25%20%15%10%5%0%01224364860728496108Months From Hire6

In Summary:Law Firms:1. Are seeing fewer equity partners as a permanent trend2. Do not have the partner turnover they would like3. Have associates that are not incentivized like the past4. Trying to mine the middle ground where they can grow appropriatelySome things to consider:1. With a lack of associates looking to be the next leaders, how can a firmgrow 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?7

How do we Encourage the “Right” Behavior?You get what you pay for!8

Historic Compensation Systems“Mission No.1 is to Preserve the Partnership”9

The Importance of a Proper Compensation SystemPreservingProfitabilityProfitability Preserving thePartnershipCompensationLevels Preservingthe Firm Thresholdfor HappyPartners10

Historic Compensation Systems1.2.3.4.5.Equal PartnershipTeam CompensationLock StepUnit SystemEat What you Kill11

Equal Partnership12

Team Compensation13

Lock Step14

Unit System15

Eat What You Kill16

Historic Compensation SystemsWhat kind of firm are you?17

Scorecard ApproachFirst and Foremost:You need to establish goals and metricsthat drive your firms stated strategy1. You need a strategy2. People need to know what it isSecondly :1.2.3.4.Establish the core metrics to be analyzedSet realistic goalsSet stretch goalsDon’t hesitate to add subjective criteria and ranking associated18

What is Your Strategy?Recognize your strategy1. Poll your partners2. Ask your clients3. Follow the moneyPotential issues1.2.3.4.Strategy and tactics are often confusedContrasting priorities (geographic/practice area driven)Failure to achieve strategic goalsUnrealistic expectations19

What is a Scorecard?A structured performance management toolgeared towards aligning behavior with desiredoutcomes20

Simple Scorecard Output Goals1. Easy to read/distribute document to determineindividual strengths and weaknesses2. Result that is easy compare to stated goals and peergroups3. Automated output that can be updated/adapted asneeded21

Simple Scorecard Output Goals22

Balanced Scorecard Goals – Kaplan & Norton1. Translating the vision into operational goals2. Communicating the vision and link it to individualperformance3. Business planning; index setting4. Feedback and learning, and adjusting the strategyaccordingly23

Partner Scorecard Goals – Law Firm Specific1. Objectively measuring how partners are helping thefirm meet its strategic goals2. Consistently measuring partner performancea.b.Understanding where a partner excels or falls short can provideinsight into development planChanges overtime to the methodology will occur3. Providing a tool that can help with goal setting andpartner development4. Providing a quantitative starting point for partnercompensation determination (secondary)24

How to Determine Goals and MetricsAs owners of the firm, what are partners responsible for? On what criteria arepartners assessed?Generating business for the firmManaging client relationshipsUnderstanding client needsPerforming legal workProviding work to associatesMentoring and supervising othersManaging matter and client profitabilityBeing a team playerBeing innovative/visionaryExpense managementInventory managementBe a good lawyer25

Goal: Build A Sustainable OrganizationWhat Would You Measure On a “Balanced” Scorecard?Manage DriversofProfitabilityGrow FirmRevenueEnter selected new marketsEngage new clientsIncrease client LTVDeliver ValueQuality outcomesEfficient nce PracticeSpecialization &BreadthExhibit CivicResponsibilityExpertise in key areasComplementary productsSupport communityClient Project ManagementCross-sellingTrusted advisorRate settingIntakeCash flow optimizationRecruit & RetainTalentSuccessionPlanningCreate EfficiencyThrough TechnologyMatterManagementAttorney developmentRoles & accountabilities Knowledge management

Metrics and Score CriteriaEach metric can carrydifferent weighting27

Sample Output2828

Partner Scorecard29

Partner Scorecard25%Previous Year Distribution by 0.6 - 11.1 - 55.6-66.1-6.56.6-77.1 -7.530

Example of Usage31

Partner Metrics and Score Criteria32

Different Weighting ExamplesRelative WeightPortion ofTotal ScoreSubjective0x0%24%Hours Owned1x12.5%2x24%Cross Sell Count2x25%New Clients Orig1.5x18%New Clients Orig3x19%2 Yr Attrition1.5x18%2 Yr Attrition2x19%1x12%Hours Worked1x12.5%.25x3%Associate Capac.5x6%Realization00%Realization.5x6%PM Hours00%PM Hours00%Base ExampleRelative WeightPortion ofTotal ScoreSubjective0x0%Hours Owned2xCross Sell CountHours WorkedAssociate Capac Client DevelopmentFocus*Weighting should support the strategy of the firm and practice areaFlexibility for setting weighting by section/department/partner type33

Different Weighting ExamplesBase ExampleRelativeWeightPortion of TotalScoreScoreSubjective0x0%6HoursOwned2x24%Cross SellCount2xNew ClientsOrig2 Yr AttritionRelativeWeightPortion ofTotal ScoreScoreSubjective0x0%66Hours Owned1x24%624%8Cross Sell Count2x24%81.5x18%8New Clients Orig3x18%81.5x18%72 Yr Attrition2x18%71x12%6Hours Worked1x12%6.25x3%4Associate Capac.5x3%4Realization00%5Realization.5X0%5PM Hours00%6PM Hours00%6HoursWorkedAssociateCapacWeighted Score 7.18Client DevelopmentFocusWeighted Score 8.834

Subjective criteria examplesHow partners contribute to building the firmTeam PlayerInnovation/visionTraining/MentoringStrong Manager (practice/office)Overall Subjective Average35

Average Partner Score By Metric8765Practice 14Practice 2Practice 33Practice 4All Practices210AverageWeightedScoreRelative Weight:Average ofAverage ofCross SellHours OrigCount Score New ClientsScore21.5Average ofTwo YearAttritionScore1.5Average ofHoursOwnedScore1.0Average ofRealizationScore1.0Average ofHoursWorkedScoreAverage ofAssociateCapacityScore0.50.536

Normalized Scores by Practice2Average Weighted Score1.75Average of Cross Sell Count Score1.5Average of Hours Origination NewClients Score1.25Average of Two Year AttritionScore1Average of Hours Owned Score0.75Average of Realization Score0.5Average of Hours Worked ScoreAverage of Associate CapacityScore0.250Practice 1Total ScoreRank:2Practice 2Practice 3Practice 443137

Putting Information to UseObservation #1: One practice performed relatively well in terms of partner hoursworked but relatively poorly in terms of associate capacityTactic: Assess whether work is being appropriately leveraged to associates or right-sizethese sections38

Normalized Scores by Practice2Average Weighted Score1.75Average of Cross Sell Count Score1.5Average of Hours Origination NewClients Score1.25Average of Two Year AttritionScore1Average of Hours Owned Score0.75Average of Realization Score0.5Average of Hours Worked ScoreAverage of Associate CapacityScore0.250Practice 1Total ScoreRank:2Practice 2Practice 3Practice 443139

Putting Information to UseObservation #1: One practice performed relatively well in terms of partner hoursworked but relatively poorly in terms of associate capacityTactic: Assess whether work is being appropriately leveraged to associates or right-sizethese sectionsObservation #2: Two practices perform well in terms of realization but relativelypoorly in terms of hours worked.Tactic: Look for opportunities for creative pricing to reduce capacity40

Normalized Scores by Practice2Average Weighted Score1.75Average of Cross Sell Count Score1.5Average of Hours Origination NewClients Score1.25Average of Two Year AttritionScore1Average of Hours Owned Score0.75Average of Realization Score0.5Average of Hours Worked ScoreAverage of Associate CapacityScore0.250Practice 1Total ScoreRank:2Practice 2Practice 3Practice 443141

Putting Information to UseObservation #1: One practice performed relatively well in terms of partner hoursworked but relatively poorly in terms of associate capacityTactic: Assess whether work is being appropriately leveraged to associates or right-sizethese sectionsObservation #2: Two practices perform well in terms of realization but relatively poorlyin terms of hours worked.Tactic: Look for opportunities for creative pricing to reduce capacityObservation #3: One practice has partners that own a significant book of business andhave excellent retention of the clientsTactic: Cross breed best practices from these partners42

Normalized Scores by Practice2Average Weighted Score1.75Average of Cross Sell Count Score1.5Average of Hours Origination NewClients Score1.25Average of Two Year AttritionScore1Average of Hours Owned Score0.75Average of Realization Score0.5Average of Hours Worked ScoreAverage of Associate CapacityScore0.250Practice 1Total ScoreRank:2Practice 2Practice 3Practice 443143

Putting Information to UseObservation #1: One practice performed relatively well in terms of partner hoursworked but relatively poorly in terms of associate capacityTactic: Assess whether work is being appropriately leveraged to associates or right-sizethese sectionsObservation #2: Two practices perform well in terms of realization but relatively poorlyin terms of hours worked.Tactic: Look for opportunities for creative pricing to reduce capacityObservation #3: One practice has partners that own a significant book of business andhave excellent retention of the clientsTactic: Cross breed best practices from these partnersObservation #4: One practice has partners that perform well on Cross SellTactic: Emulate best practices across groups44

Normalized Scores by Practice2Average Weighted Score1.75Average of Cross Sell Count Score1.5Average of Hours Origination NewClients Score1.25Average of Two Year AttritionScore1Average of Hours Owned Score0.75Average of Realization Score0.5Average of Hours Worked ScoreAverage of Associate CapacityScore0.250Practice 1Total ScoreRank:2Practice 2Practice 3Practice 443145

Cross Sell Score ComparisonPractice 46Practice 3322Practice 2143Practice 120%23280%01840%60%0Lags (0-3)Meets Goal(6)Excels (8-10)1180%100%Numbers within each bar are the count of equity partners28 equity partners lagexpectations for crossselling18 equity partnersmeet expectations forcross selling11 equity partnersexceed expectationsfor cross selling46

Sample Output4747

What We Have Learned1. Not a “one size fits all” solution2. Take the personal element out of it, use for businessdevelopment/strategy3. Essential to have support from the top4. Positioning is important (“scorecard” may not bethe best term!)5. Alignment with firm and practice strategies6. Not just a reporting exercise48