Profit share review

Profit share seems to be a particular hot topic for law firms at present, with many reviewing whether their profit share mechanism is appropriate.  Most are considering whether it is fair; whether it is in line with competitors/the market; whether it encourages the right behaviours; and whether it helps to attract and retain the best people.

Background

In this particular case, a mid-tier law firm with a huge reputation in their chosen fields had attempted to introduce a performance related element into their partner profit share.  That had not worked particularly well, which is not necessarily a surprise as it is incredibly difficult to introduce such a performance related scheme – having sufficient numbers of partners to buy into and then sign off on such a move can take huge amounts of time and may not be achievable for some, and agreeing and then implementing the measures is not easy, especially where subjectivity may be required.

The firm had agreed to introduce a new scheme, but gave up on it at the end of the first year due to partners taking issue with the measures and measurements.  We were then brought in to review the scheme and to make high level observations and suggestions in a report that was circulated to the partners.  That report was well received, and the partners did agree that an effective scheme would be beneficial, and so we were then instructed to review how to implement something that might be more effective.

What we did

Because of the issues the partners had found in the first attempt, we needed to find a way to ensure that the voices of the partners were heard and that there was consensus on the way forward.  We therefore designed a bespoke questionnaire, circulated that to the 20+ equity partners, reviewed it and then held interviews with each of the partners to flesh out and discuss the points that they had made.  Each of those interviews concluded with our understanding of their views on a way forward.

The feedback from the questionnaires and interviews was used to prepare a report for the firm on an agreed way forward.  This turned many of the subjective measures into objectives ones; cut down the number of measures; made the measures specific and relevant to individuals (rather than one size fits all); and took away the risks of large increases/drops from year to year – whilst still retaining sufficient incentive to perform in a way that matches the strategy of the firm.

Result

Feedback from the managing partner has been excellent following circulation of the report to the partners, we are now working with the firm to put the building blocks in place to fully implement it.  The recommendations will then be phased in over a set period of time in order to help partners prepare for the new scheme and put themselves in a strong position to benefit from it.