<i>Accounting & Financial Planning for Law Firms</i> <b>Partner Business Plans as a Planning Tool</b>

Personal goal setting has been popular and effective in other professions and industries for many years. Lawyers have been slow in coming around because they are afraid that the exercise will be a waste of time or will restrict how they practice. As consultants, we still hear partners say, “I'm a partner, I can do as I damn well please.” This attitude is not as prevalent as it was in the past, but it still exists and must be dealt with.

Defining the Successful Partner

Although personal goal setting should by definition be individualized, it must of course align with the needs and culture of the organization. Every firm should therefore reflect on the qualities that its lawyers must embody to achieve success. These qualities will differ from firm to firm. However, the following is a representative list:

• Quality work as well as quality service ' viewed as separate criteria by clients.
• Work ethic ' how hard and smart the lawyers work.
• Multiplier effect ' the ability and willingness of a lawyer to make the most of himself/herself through business development; business management; delegation to other partners, associates, and paralegals; and supervision of others.
• Specialization ' the ability and willingness to develop a specialty, possibly by limiting one's scope of practice.
• Firm and practice management ' the ability and willingness to play a leadership role.
• Team approach ' the willingness to work with other people, not hoard work or practice as a “lone ranger.”
• Accountability ' a willingness to follow the rules and to be held accountable for one's actions (or inactions), both positive and negative.

Functions of Personal Goal Setting

Like any good plan, of course, a personalized work plan serves as a basis for accountability and performance evaluation. But partners should not feel threatened by personal goal setting. Quite the contrary, a properly negotiated personal work plan can encourage lawyers to focus on types of work they most enjoy and for which they have shown a demonstrated aptitude, while at the same time aligning each partner's activities with the firm's overall goals. Importantly, the plan's goals should include nonbillable contributions by the partner, not just billable time.

The work plan serves as an effective tool for communicating to the partner what is expected for the coming year. In effect, it is a written definition of an “acceptable contribution.” When tracked properly, it also keeps management and the partner informed on a regular basis of whether the partner is performing as planned. When used properly, the model should eliminate surprises.

While performance compared to the model should be only one of multiple criteria used in determining partner compensation, it may be the primary basis for allocating bonuses from an “extraordinary-performance pool.”

Preparation and Use of Personal Plans

Personal business plans can be introduced most easily and effectively in firms whose compensation systems have sufficient flexibility to recognize each individual's total contribution to the firm. By contrast, it is difficult to achieve maximum benefit from personal work plans in firms that have lockstep or other seniority-based compensation systems.

Procedurally, the first step in creating a personal business plan is performed by the partner, who completes a goal-setting form using approved guidelines (see sidebar, Tips for Creating a Partner's Customized Model and Plan). This requires the partner to develop personal goals, and also promotes a sense of proprietorship. The completed form is sent to the managing partner or to the partner's practice group chair for review. The managing partner or the practice group chair meets with the partner to discuss the model, consider alternatives, and eventually approve the model.

The design of the planning worksheet should be tailored to complement the firm's goals in using the exercise; do not put style over substance.

The planning exercise itself requires partners to think about both their targeted individual production and the nonbillable activities they wish to pursue. In effect, the completed personal plan defines a partner's commitment to the firm for the coming year and establishes guidelines for accountability.

The plans for all attorneys in each practice group are reviewed and approved by the practice area chair, the department head (if applicable), and finally by the managing partner. Members of the firm's Management Committees are given copies of all models. Department heads have copies of all the models of partners in their respective departments. Practice group chairs have copies of all the models of partners in their respective practice groups.

Simply setting goals is not enough. Individual performance is tracked to ensure that partners meet their goals. To do that, the practice area chair or the managing partner should conduct a quarterly analysis to spot problems before they get out of hand. These meetings should assess how well the partner is living up to the plan – analyzing accomplishments and disappointments, as viewed by the partner and possibly by other partners.

When discussing plan-performance discrepancies with individual partners, managers should consider amending their plans as well as their behavior. Plan amendments should not be a common practice, but there may be situations where an adjustment is warranted; this helps eliminate surprises at year-end.

In addition to these quarterly reviews, firm managers should meet with each partner annually to discuss and approve the partner's performance model for the next year.

Use of Personal Plan in Compensation Decisions

There are two ways to utilize personal plans to assess performance in the compensation process. First, the performance of a partner for the current year compared to his/her performance model should be a factor in determining points or percentages. Many firms use a “3-year look-back” to review the partner's performance in an effort to reward positive trends and to prevent partners' compensation from taking unusual spikes upward or downward.

Second, if the firm has an extraordinary-performance bonus fund, use the expectations spelled out in the model as the baseline for identifying extraordinary performance.

Performance Bonus Fund Characteristics

Extraordinary-performance bonuses are quite popular today with many firms. There are numerous versions, but the following characteristics are common:

• A percentage of anticipated funds, or a specific amount of funds, is set aside to ensure that partners who perform extremely well are rewarded. Some firms accumulate these funds throughout the year.
• Even if the firm has a slow year, extraordinary funds can reward one or more partners if they have standout performances.
• While the fund provides an incentive to individual partners, it also allows the firm to reward a partner for what might be a one-time accomplishment ' without making a large increase in points.
• A partner becomes eligible to be considered for an award from the fund by exceeding his/her personal plan's business model.
• Since this fund is not a source of income for all partners, it is important that the awards be large enough to explain. Although the minimum varies by firm, we recommend $10,000 to $25,000, with any additional amounts in increments of $5000.
• It is not necessary to award all or even any of the fund. Amounts that are not awarded from the fund are allocated to all partners based on their points/percentages.

Demonstrated Advantages of Personal Plans

Firms that are willing to spend the time required to use performance models effectively have experienced numerous benefits:

• Focused effort. The efforts of each partner are focused on those activities that are perceived by firm management to be in the best interests of the firm, and each partner has a vested interest in his/her model.
• Enhanced evaluation. Peer review is becoming more popular at the partner level, and the model can serve as a partial guide.
• Increased accountability. This may be the greatest benefit. Partners are more likely to accept higher accountability when they participate in defining the parameters of their expected contributions.
• Improved communication. The partner knows what is expected. It is also more difficult for a partner to accuse the Compensation Committee of arbitrary rulemaking when the partner helped design his/her personal plan.
• Help in budgeting. The personal production aspect of the model is a target for the firm's projected gross revenues. (Be careful how you use this information in your budgeting of expected fee income, however, until you have some history of how individual partners perform compared to their models.)

Objections to Personal Plans

Some firms have explicitly rejected personal business plans, but for reasons that do not seem compelling:

• 1-year focus. This objection would indeed be valid if the model is misused to control all aspects of compensation. However, the proper purpose of these models is to get partners to set personal goals, improve accountability, and to give firms that want to use an extraordinary fund a system for determining what is extraordinary.
• Numbers oriented. This objection will also be valid if the firm uses the personal production segment but gives only lip service to the other segments. One real value of the model is to customize nonbillable time for each partner.
• Hinders flexibility. This is nothing more than an excuse; form should not control substance. There should be a lot of flexibility if the process if used properly.
• Undermines team approach. Under any system, some partners will hoard work, work outside their areas of expertise, and not function as team players. It is management's responsibility to spot this problem and deal with it.
• Too time-consuming. This exercise does take a lot of time. However, this can be the most valuable time spent during the year if the firm is sincere about implementation.

Bottom Line

No compensation system will keep all partners happy all of the time. You are more likely to keep most partners happy most of the time if you:

• Use an exhaustive process ' it is better to do too much than too little;
• Communicate openly and honestly about contributions that are expected from the individual partners;
• Let partners know when their contributions are not at the level expected;
• Involve all partners in the process; and
• Eliminate surprises.

Personal goal setting has been popular and effective in other professions and industries for many years. Lawyers have been slow in coming around because they are afraid that the exercise will be a waste of time or will restrict how they practice. As consultants, we still hear partners say, “I'm a partner, I can do as I damn well please.” This attitude is not as prevalent as it was in the past, but it still exists and must be dealt with.

Defining the Successful Partner

Although personal goal setting should by definition be individualized, it must of course align with the needs and culture of the organization. Every firm should therefore reflect on the qualities that its lawyers must embody to achieve success. These qualities will differ from firm to firm. However, the following is a representative list:

• Quality work as well as quality service ' viewed as separate criteria by clients.
• Work ethic ' how hard and smart the lawyers work.
• Multiplier effect ' the ability and willingness of a lawyer to make the most of himself/herself through business development; business management; delegation to other partners, associates, and paralegals; and supervision of others.
• Specialization ' the ability and willingness to develop a specialty, possibly by limiting one's scope of practice.
• Firm and practice management ' the ability and willingness to play a leadership role.
• Team approach ' the willingness to work with other people, not hoard work or practice as a “lone ranger.”
• Accountability ' a willingness to follow the rules and to be held accountable for one's actions (or inactions), both positive and negative.

Functions of Personal Goal Setting

Like any good plan, of course, a personalized work plan serves as a basis for accountability and performance evaluation. But partners should not feel threatened by personal goal setting. Quite the contrary, a properly negotiated personal work plan can encourage lawyers to focus on types of work they most enjoy and for which they have shown a demonstrated aptitude, while at the same time aligning each partner's activities with the firm's overall goals. Importantly, the plan's goals should include nonbillable contributions by the partner, not just billable time.

The work plan serves as an effective tool for communicating to the partner what is expected for the coming year. In effect, it is a written definition of an “acceptable contribution.” When tracked properly, it also keeps management and the partner informed on a regular basis of whether the partner is performing as planned. When used properly, the model should eliminate surprises.

While performance compared to the model should be only one of multiple criteria used in determining partner compensation, it may be the primary basis for allocating bonuses from an “extraordinary-performance pool.”

Preparation and Use of Personal Plans

Personal business plans can be introduced most easily and effectively in firms whose compensation systems have sufficient flexibility to recognize each individual's total contribution to the firm. By contrast, it is difficult to achieve maximum benefit from personal work plans in firms that have lockstep or other seniority-based compensation systems.

Procedurally, the first step in creating a personal business plan is performed by the partner, who completes a goal-setting form using approved guidelines (see sidebar, Tips for Creating a Partner's Customized Model and Plan). This requires the partner to develop personal goals, and also promotes a sense of proprietorship. The completed form is sent to the managing partner or to the partner's practice group chair for review. The managing partner or the practice group chair meets with the partner to discuss the model, consider alternatives, and eventually approve the model.

The design of the planning worksheet should be tailored to complement the firm's goals in using the exercise; do not put style over substance.

The planning exercise itself requires partners to think about both their targeted individual production and the nonbillable activities they wish to pursue. In effect, the completed personal plan defines a partner's commitment to the firm for the coming year and establishes guidelines for accountability.

The plans for all attorneys in each practice group are reviewed and approved by the practice area chair, the department head (if applicable), and finally by the managing partner. Members of the firm's Management Committees are given copies of all models. Department heads have copies of all the models of partners in their respective departments. Practice group chairs have copies of all the models of partners in their respective practice groups.

Simply setting goals is not enough. Individual performance is tracked to ensure that partners meet their goals. To do that, the practice area chair or the managing partner should conduct a quarterly analysis to spot problems before they get out of hand. These meetings should assess how well the partner is living up to the plan – analyzing accomplishments and disappointments, as viewed by the partner and possibly by other partners.

When discussing plan-performance discrepancies with individual partners, managers should consider amending their plans as well as their behavior. Plan amendments should not be a common practice, but there may be situations where an adjustment is warranted; this helps eliminate surprises at year-end.

In addition to these quarterly reviews, firm managers should meet with each partner annually to discuss and approve the partner's performance model for the next year.

Use of Personal Plan in Compensation Decisions

There are two ways to utilize personal plans to assess performance in the compensation process. First, the performance of a partner for the current year compared to his/her performance model should be a factor in determining points or percentages. Many firms use a “3-year look-back” to review the partner's performance in an effort to reward positive trends and to prevent partners' compensation from taking unusual spikes upward or downward.

Second, if the firm has an extraordinary-performance bonus fund, use the expectations spelled out in the model as the baseline for identifying extraordinary performance.

Performance Bonus Fund Characteristics

Extraordinary-performance bonuses are quite popular today with many firms. There are numerous versions, but the following characteristics are common:

• A percentage of anticipated funds, or a specific amount of funds, is set aside to ensure that partners who perform extremely well are rewarded. Some firms accumulate these funds throughout the year.
• Even if the firm has a slow year, extraordinary funds can reward one or more partners if they have standout performances.
• While the fund provides an incentive to individual partners, it also allows the firm to reward a partner for what might be a one-time accomplishment ' without making a large increase in points.
• A partner becomes eligible to be considered for an award from the fund by exceeding his/her personal plan's business model.
• Since this fund is not a source of income for all partners, it is important that the awards be large enough to explain. Although the minimum varies by firm, we recommend $10,000 to $25,000, with any additional amounts in increments of $5000.
• It is not necessary to award all or even any of the fund. Amounts that are not awarded from the fund are allocated to all partners based on their points/percentages.

Demonstrated Advantages of Personal Plans

Firms that are willing to spend the time required to use performance models effectively have experienced numerous benefits:

• Focused effort. The efforts of each partner are focused on those activities that are perceived by firm management to be in the best interests of the firm, and each partner has a vested interest in his/her model.
• Enhanced evaluation. Peer review is becoming more popular at the partner level, and the model can serve as a partial guide.
• Increased accountability. This may be the greatest benefit. Partners are more likely to accept higher accountability when they participate in defining the parameters of their expected contributions.
• Improved communication. The partner knows what is expected. It is also more difficult for a partner to accuse the Compensation Committee of arbitrary rulemaking when the partner helped design his/her personal plan.
• Help in budgeting. The personal production aspect of the model is a target for the firm's projected gross revenues. (Be careful how you use this information in your budgeting of expected fee income, however, until you have some history of how individual partners perform compared to their models.)

Objections to Personal Plans

Some firms have explicitly rejected personal business plans, but for reasons that do not seem compelling:

• 1-year focus. This objection would indeed be valid if the model is misused to control all aspects of compensation. However, the proper purpose of these models is to get partners to set personal goals, improve accountability, and to give firms that want to use an extraordinary fund a system for determining what is extraordinary.
• Numbers oriented. This objection will also be valid if the firm uses the personal production segment but gives only lip service to the other segments. One real value of the model is to customize nonbillable time for each partner.
• Hinders flexibility. This is nothing more than an excuse; form should not control substance. There should be a lot of flexibility if the process if used properly.
• Undermines team approach. Under any system, some partners will hoard work, work outside their areas of expertise, and not function as team players. It is management's responsibility to spot this problem and deal with it.
• Too time-consuming. This exercise does take a lot of time. However, this can be the most valuable time spent during the year if the firm is sincere about implementation.

Bottom Line

No compensation system will keep all partners happy all of the time. You are more likely to keep most partners happy most of the time if you:

• Use an exhaustive process ' it is better to do too much than too little;
• Communicate openly and honestly about contributions that are expected from the individual partners;
• Let partners know when their contributions are not at the level expected;
• Involve all partners in the process; and
• Eliminate surprises.