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January 2025
For most professional services firms, the first financial quarter means preparing for partner reward rounds. While some partners enjoy the responsibility of serving on a Remuneration Committee (‘RemCom’) and relish the respect that goes with it, most view the process of deciding on how partners should share in the firm’s profits with trepidation.
This article offers five ways you can improve this year’s partner reward round for a more efficient process that is less stressful for those involved in the process. And yes, I assume your firm operates a formal RemCom, yet these five ways work just as well for firms that don’t – just mentally replace “RemCom” with those partners involved in the partner reward process.
The five ways are:
1. Properly initiate new RemCom members
In most professional partnerships, new RemCom members receive very little induction, education or guidance. The prevailing view is that partners simply ‘know what to do’ because they have been subject to the firm’s partner reward system for some time before having been appointed to the role.
Yet most partners who serve on their firm’s RemCom for the first time are wholly unprepared for the important role they are to play. This only adds to the tremendous amount of stress that RemCom members often experience.
At a minimum, a good induction process for RemCom members covers the following topics:
The Chair is responsible for conducting new member training to set the right tone of conduct from the beginning. This should not be outsourced to the Chief Financial Officer or Chief People Officer.
2. Conduct a Before-Action-Review
Many RemComs go straight to discussing partner groups in their first meetings. Yet without adequate preparation, frustration is pre-programmed.
Use this seven-point agenda for a RemCom Before-Action-Review:
3. Insist on pre-filtering of partner contribution information
Many firms provide far more information to their RemComs than members can make sense of. Think of spreadsheets upon spreadsheets with dozens of columns of financial data, wordy self-assessments, review notes from partners, 360 outputs that weren’t designed for reward purposes, client inputs, and engagement surveys. Often, these are further supplemented by individual partner interviews or review sessions with team leads or business unit leaders. This is far too much information.
When overloaded, RemCom members will focus on those bits of information that they can easily make sense of and base 95% of their decision-making on that. Usually this means they will rely on some simplistic financial metric, which never shows the complete picture, as the primary proxy for partner contribution. This is fine if you’re operating a formula-based, “eat-what-you-kill” system. Yet any partner reward system that attempts to evaluate a holistic picture of partner performance will struggle to arrive at a fair reward recommendation when RemCom members are overloaded with too many data points.
There is a two-part solution to this challenge.
First, management must pre-structure the plethora of inputs in a way that RemCom members can more easily make sense of them. The larger the partnership, the more the data needs to be clustered. What the clusters look like depends on the structure and business model of the partnership. Examples include clusters by service line or office, clusters by reward position (tiers) or clusters by where partners are in their life-cycle (e.g. entry-level partners versus partners anticipating retirement).
Second, infrastructure plays an important role here. For small partnerships, this could all be managed with spreadsheets and similar tools. Yet as the partnership grows, the more complex the firm becomes, and the more multi-dimensional partner contribution expectations become, a dedicated platform – such as that of our partner firm Performance Leader – likely is a better solution.
4. Follow the ’80-15-5′ rule
Spend time at the outset setting aside the exceptions: partners who are grossly under-contributing or those who are clear performance outliers. Deal with these 5% last.
Then aside partners with special roles in the partnership. These invariably include the managing partner, some partners in other formal senior leadership roles and those who have special deals, which could include partners charged with launching a new greenfield office. RemCom members also fall into this group.
Having set these two groups aside, now start with a preliminary reward allocation of the remaining majority (likely ca. 80% of partners). This will be much easier without the distraction of the first two groups of partners. In large partnerships this will be done in groups by service line, office or the like.
Once that preliminary reward allocation has settled, go back and consider partners in the first two groups. Sometimes it is convenient to consider them together because invariably the performance outliers also have a special leadership role in the firm.
The simple act of setting aside exceptions at the beginning will allow a much more careful balancing of internal relativities – and gets you to a result with much more efficacy.
5. Invest in cognitive bias training for better decision-making
Most partnerships invest far too little in helping RemCom members identify and mitigate the effects of cognitive biases that invariably creep into decision-making. Many firms are concerned that RemComs make decisions that are ‘objective’ or at least based on ‘objective’ information. Yet this obsession with objectivity can become misguided: the most difficult decisions by any RemCom will always end up being a subjective judgment call, balancing what is fair for the partnership with what is fair for a particular partner.
More important is that RemCom members make ‘good’ decisions, with ‘good’ being defined as an absence of cognitive bias as far as possible. This is because it is the fear of bias that drives partners to demand ‘objective’ decisions.
I encourage you to implement just one of the above five suggestions for your next partner reward round. Email me afterwards – I look forward to your observations.
Take the next step
If you’re looking to build or review your partner remuneration structure, sign up to take our in-depth Partner Remuneration System Diagnostic to uncover specific actions you can take to measurably improve your partner reward system.
Empower your committee to drive faster, more effective reward decisions. Register for the Partner Remuneration Committee Fundamentals course today.
Or, if you would value a no obligation exploratory call with Michael about improving how your Partner Compensation Commtitee operates, please reach out to the team at [email protected].
