Tailoring Your Partner Compensation Plan

A partner compensation plan is one of your most effective management tools and yet many firms don’t maximize its usefulness. According to Esposito CEO2CEO advisory firm, your partner group can be visualized on a bell curve, falling into four quartiles. Understanding where they fall can help improve your compensation design to make it vital to your bottom line.

In the first quartile, you have the high performers who produce outstanding contributions to the firm on a consistent basis, your go-getters. Their contributions might be in maintaining excellent client relationships, consistent new business development or mentoring younger staff and firm administration. These are the partners who receive large year-end bonuses and generally are the firm’s highest earners.

In the second quartile, you have the solid performers. They are reliable team players who do their best and are sincere in furthering the success of the firm. More than likely these partners are a combination of seasoned equity partners and up and coming non-equity partners. They are worth every penny that they get in compensation.

In the third quartile, you have the journeymen. These partners give you a solid performance and do what they can to further the firm but may possess qualities of an employee rather than an owner of the business. They usually aren’t the lead partners on client relationships because they are not as effective, only occasionally bringing new business.

In the fourth quartile, you have partners who are poor performers for a host of different reasons. Perhaps they no longer possess the necessary drive, or never had it to begin with.

Esposito CEO2CEO believes that firms need more than 50% of its partners in the first and second quartile to realize your firm’s full potential and should make changes as necessary, especially if it has more than half of your partners in the third and fourth quartiles.

To continue this momentum, using your partner compensation plan to reward desired behaviors can move the firm’s bottom line. Esposito CEO2CEO suggests:

  • Rewarding partners who covet clients for their own rather than for the firm does nothing to encourage a cohesive atmosphere. Similarly, rewarding an “eat what you kill” environment won’t build a firm that can remain independent in the long run.
  • Tolerating poor client billing and collecting habits not only tells the compliant partners that you aren’t serious about the firm’s stated policies, but you may risk losing other high performers who don’t respect leadership with inconsistent management.
  • Staff evaluations should be timely to cut down on unnecessary turnover. This should also include the ability to have upward partner evaluations to moderate potential staff abuses.
  • Make sure you are paying your top performers their market value, rather than sprinkling the bonus pool to fourth quartile partners.

Of course, there is no perfect partner compensation plan, but if your plan doesn’t address these success factors, you probably aren’t rewarding the necessary behaviors that will enable you to compete in the future.