5 ways to fundamentally improve your next partner reward round

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June 2024

We explore 5 ways to optimize partner reward rounds for better decisions and reduce time spent and stress by partner compensation committee members.

Depending on the date of your financial year-end, sooner or later one question takes center stage: How to get to fair partner compensation decisions while reducing the burden on RemCom members?

Most firms can move through partner reward rounds more quickly if they slow down just a little at the beginning and invest in the process and practices of their partner compensation committee.

Here are 5 ways to fundamentally improve this year's partner reward round, even if you don’t have a formal partner compensation committee.

1. Proper induction for new RemCom members

   Any RemCom member has one of the most stressful roles in the partnership, yet most partner compensation committee members receive no or minimal induction to the task at hand. Yet without a high-quality induction into the partner remuneration policy, KPIs and the committee's ways of working, the committee can waste a lot of time on things other than deciding on bonuses or profit shares. This has repercussions for other members as well as the quality and efficiency of the reward round.

   How solid is your induction for partner remuneration committee members?

2. Conduct a before-action-review
   

   Most RemComs dive straight into partner data or discuss individual partners. Yet without adequate preparation, this can lead to frustration - and much more time spent in meetings than necessary. Instead, start each round with a Before-Action-Review (BAR). A BAR kicks off the reward round, introduces members to major changes to partner reward policy and anticipates the potential impact of business performance on partner expectations.

   What is the standard agenda for your reward round BAR?

3. Reduce data overload by pre-filtering partner contribution information
   

   Most RemComs don't suffer from not enough data - most suffer from data overload, an excess of complex information and volumes of data that are insufficient, duplicative or irrelevant. As a consequence, RemCom members risk going into "data overload" mode and focus on 2-3 traditional production metrics (billings, gross profit) on which they base their decisions.

   This may be fine in financial meritocracies, yet not in firms that value a partner's holistic contributions to the business. Yet the middle of a partner reward round is not the place to try to improve partner data sets - that work needs to be done in-between rounds.

   The answer is that RemCom spend their first meeting prefiltering partner contribution information that RemCom members should focus on. (RemCom Chair with the relevant C-suite could even do this in advance depending on how they are empowered.)

   This means eliminating data points that drive to the same performance indicator (e.g. do you really need WIP Days, Debtor Days and Lock-up Days as part of a partner's data sheet?), clustering related information (e.g. creating groups of performers for each remaining performance indicator) and distilling qualitative information to their essence.

   This advance work may be tedious upfront work, yet will focus RemCom members on the right information, allows them to take a holistic approach to partner contribution and reduces the cognitive burden on RemCom members which saves time they can spend on client work outside the committee

   How is partner data overload reduced in your firm?

4. Follow the ‘80-15-5’ rule
   

   Many RemComs focus too much on "underperformers" and not enough time on "rising stars". To avoid this, take a second step after pre-filtering partner information. First, set aside clear "under-contributors" and "superachiever outliers" (likely about 5% of your partnership) and other high achievers as well as partners with special roles (likely about 15%. Then get to preliminary reward allocations for the majority of "average" partners (the remaining 80%).

   Third, go back to the partner you've set aside. This approach has three advantages. True "under contributors" will see harder decisions, and those few partners who are true performance outliers will see higher allocations. And RemCom members likely will spend less time in RemCom.

   What decision-making process does your RemCom follow?

5. Invest in cognitive bias training
   

   Even in the most formulaic of partner compensation systems, there's no such thing as an unbiased decision. Yet many biases are unintended, and some can be reduced by training. Thus, provide regular training to RemCom members on recognizing, calling out and mitigating the effects of biases.

   A few hours invested each year will make for more objective, high-quality decision-making - which in turn leads to better RemCom decisions that enjoy a higher degree of acceptance by the partnership at large.

   When was your partner compensation committee's last training on cognitive biases?

   Implementing even one of these methods will substantially reduce the time your RemCom members spend on partner rewards. Implementing all of them also will improve the quality of your RemCom's decisions and give more space to make partner reward allocations less stressful for committee members.

   They may even make for a stronger partnership as better RemCom decisions nearly always lead to higher partner acceptance of the result. This article kicks off a short series on ways to improve partner reward rounds at your firm.

   Please share with me the single thing you are doing this year to improve your partner compensation round [email protected]