performance mgmt in the professions study

PSF Sector Performance Management Study 2016 Evolving performance management in the professions.

15 February 2016

© 2016 MPF, MHPR & SkillsScorecard: All rights reserved. 1/25

Contents 1. Executive Summary ......................................................................................... 2 2. About This Study .............................................................................................. 5

Why now? ................................................................................................. 5 2.2. Demographics and Methodology ......................................................... 6

3. Study Results .................................................................................................... 7 3.1. Ratings and forced rankings ................................................................... 7 3.2. Frequency of formal and informal performance

feedback ................................................................................................... 8 3.3. Project-based feedback ........................................................................ 10 3.4. Select Aspects of Performance Management:

Importance v Effectiveness and Skill ................................................... 10 3.5. Leading priorities for improvement .................................................... 12 3.6. Inputs into the Performance Management process .......................... 13 3.7. Link between Performance Management and

remuneration .......................................................................................... 15 3.8. Use of technology .................................................................................. 16 3.9. The role of Human Resources .............................................................. 17

4. Evolving Performance Management in PSFs ............................................. 19 5. About the Authors ......................................................................................... 24 Appendix A: Respondents’ Profile ..................................................................... 25


PSF Sector Performance Management Study 2016Evolving performance management in the professions.

1. Executive Summary

Deloitte’s article on performance management in the March 2015 of the Harvard Business Review has sparked a much-needed debate about the effectiveness of performance management processes in the professional services sector. To validate our own consulting experience and technology practices in this area, we carried out a survey in the autumn of 2015 and uncovered some of the strong points and the shortcomings of current practices as well as the future intentions with respect to performance management of professionals in the professions.

The findings suggest that performance reviews today are viewed as an administrative burden, detached from driving towards the firm’s strategic or operational goals and as poorly linking personal behaviour and firm performance to remuneration outcomes. Some of our headline findings include:

Forced rankings and ratings are not an issue for PSFs. A loud polemic around the abolishment of rankings and ratings appears less relevant: while performance ratings are used frequently and are deemed useful if properly applied, most PSFs we surveyed never adopted forced rankings in the first instance.

There is a clear desire – and need – for more regular formal and informal feedback. Most respondents agree that the old-school approach of providing feedback (typically on historical achievements) and doing so once per year is no longer fit for purpose. It lacks responsiveness, is inflexible and often meaningless in causing changes in performance.

Project-based feedback is lacking, except in one PSF sector. ‘After action’ reviews are common only in the accounting sector. Yet they provide the perfect opportunity to offer praise, promptly correct behaviours, identify and eliminate any inefficiencies, and while doing so create a solid data set for performance assessment. PSFs, and in particular law firms, are yet to make them commonplace.

Professional Services Firms do not view themselves as managing in an effective way the most important aspects of performance. Respondents consider as crucial some singular aspects of performance management; these include receiving honest feedback and having a shared understanding of personal performance between the reviewer and reviewee – and these are seen


to be handled reasonably effectively. However other aspects are viewed as less important than we might like, including achieving clarity about learning and development needs and crucially understanding career choices for reviewees. One particular element stands out: while fair remuneration outcomes are seen to be quite important, the performance management process is considered ineffective at delivering these.

Process simplification, skills development and the implementation of online reviews are leading priorities for improvement. Respondents agree that process simplification and improved training for partners and managers are key to an overall improvement in performance management. Both aims can be significantly aided by more frequent performance feedback discussions. A performance management process that occurs more frequently than once per year allows reviewers to hone their skills through “doing the job” more regularly – at the same time more frequent conversations reduce the bureaucratic weight of a huge formal process at year end.

Personal financials remain dominant inputs in partner reviews. The inputs into partner performance reviews still tend to be unbalanced and overly reliant on individual financial metrics. This individualistic approach may work well in a cost-sharing arrangement, but is hardly appropriate for a modern PSF that is looking to improve cross-selling, sharpen client focus, and drive innovation.

The link between the outputs of a firm’s performance management process and remuneration outcomes is not as strong as we expected it to be. We would never suggest that the two should be formulaically linked, yet, we would hope to see a strong connection where the outcomes of performance management are an input into decision-making on remuneration, with subjective judgement applied.

Performance analytics and performance management technology are in their infancy in professional services firms. Both could be an enabler of a streamlined, less administratively burdensome, more efficient performance management process. Yet, currently both remain underused in PSFs.

HR professionals are yet to defend the right to a seat at the partner Performance Management table. HR professionals can bring invaluable expertise to designing and implementing the review process for partners – unfortunately, many owners of the process still do not recognise it.

How to transform burdensome performance management into a more efficient and effective leadership tool?

There is no single “best practice” approach to performance management. When evolving your firm’s performance management processes, it is important to not jettison the good with the bad. Thus we recommend evolving current performance management practice along the following lines:

– Adjust leadership approach. Make performance management important, invest in skills development and engage senior HR professionals in partner performance management.


– Evolve ways of working. Link business planning, performance management and remuneration processes, increase frequency of feedback provision, balance inputs into the process by placing more weight on non-financial measures – align these with what performance means at your firm.

– Increase the use of technology. Leverage required time by replacing manual processes with technology, streamline and simplify supporting technology, and build HR’s analytics capabilities.

We look forward to discussing the results of our study with you.


2. About This Study

Why now?

The debate about what “good” performance management looks like has raged in the corporate sector for several years. Yet it was Deloitte’s self-proclaimed performance rethink, announced in the March 2015 Harvard Business Review, which sparked the debate in professional service firms (PSFs) around the world. Many managing partners and HR directors have been inundated with questions about whether their firm’s performance management methods are still fit for purpose, should be modified or should be simply abandoned. This study seeks to shed light on the status quo across professional services firms and then seeks to help evolve what good performance management in PSFs should and could look like.

The case for change – for better performance management – could not be better timed; Increased competition and the growing influence of technology in professional services means firms must be agile as they respond to the ever changing dynamics of the market. Pressure from clients to reduce costs and fix fees means that firms must find better ways to manage operating costs, and especially the single largest expense item for firms: employment costs. Performance-related pay – for both partners and staff – must be offset by productivity improvements and must always recognise emerging competency needs in areas such as innovation, entrepreneurship and creativity.

Performance management, if applied well, has the potential to be a key tool of PSF leaders to help lead through and manage these seismic changes. This is because performance management forms the link pin between leadership, strategy, results and the personal behaviours – at partner, staff and management level – to make these results happen.

However, today’s practices fall short of constituting that effective leadership tool. In many firms, performance management means an annual review and an objective-setting conversation – or a long, burdensome administrative box-ticking exercise. The big, once a year exercise is not sufficiently responsive to the changing PSF market, it is not state-of-the-art and it does not add value for partners, associates or staff alike. Equally, an administrative / compliance-based approach with processes that are poorly-understood and poorly applied as well as systems that (as our study finds) are divorced from reward determination also don’t do their part in moving the business forward. We urge PSFs to re-think their approach to performance management and to therefore get true value out of the effort they put into it.

From our consulting and technology practices, we know that performance management can serve as an effective leadership and management tool, can help ensure that the right people play to their strengths and are recognised as such and can also be an effective link pin between the firm’s objectives, behaviours, results and reward. We trust that some of the insights gained from


this study will help professional services firms evolve their approach to performance management.

2.2. Demographics and Methodology

Purpose. With the need for change becoming more and more obvious, we sought to research the status quo in the professional services sector and to contribute to rethinking performance management. We considered both the current reality of performance management and PSFs’ future intentions, and also aim to calm some of the hype present in the debate.

Demographics. In total, 227 people from 19 countries responded to our survey, with the majority based in the UK (61%) and Australia (22%). Respondents work for organisations of all sizes from a headcount of less than 250 employees to over 100,000. Nearly two thirds work in the legal sector, a sixth in accounting and the rest are evenly split among the other professional services sectors. The study was conducted online. Please refer to Appendix A for more information on the sample profile.

Structure. The study results are structured according to nine key topics from the research:

1. Ratings and forced rankings 2. Frequency of formal and informal feedback 3. Project-based feedback 4. Effectiveness of Performance Management 5. Leading priorities for improvement 6. Inputs into the Performance Management process 7. Link between Performance Management and remuneration 8. Use of technology 9. The role of Human Resources

Where appropriate, this report distinguishes between answers from partners, employees (including fee-earning staff) and members of the management team. We also highlight geographic and sector differences as well as where reviewers and reviewees are of different points of view.

The final section of this paper considers the future of performance management and offers a framework for firms rethinking their approach. While some elements of this framework may be considered best practice, we strongly favour the proposition that each firm needs to evolve its approach to performance management in a way that will reflect its own strategy and culture.


3. Study Results

3.1. Ratings and forced rankings

Ratings are here to stay, yet forced rankings are much less frequent in the PSFs we surveyed.

Much of the current public debate about performance management, especially emanating from the US, centres on the future of ratings (numeric scoring of employees) and forced rankings (the process by which employees are plotted on a bell curve from best performing to worst, based on an overall rating). Our research reveals two highly relevant findings in this context.

The first is that the use of forced rankings is quite rare in our sample of the professional services sector. Only around 5% of firms adopt the practice (3.5% of firms for partners, 8% for employees and 5% for senior management). In the legal sector, forced rankings are barely used, and even in accounting firms with over 1,000 employees only 10% of firms use forced rankings for the assessment of partners and other management team members. With respect to employee assessment, organisations with over 1,000 employees appear to use forced rankings more often – ca. 17% of them do so, with up to 22% of those with a headcount of between 1,000 and 2,500.

The second finding is that performance ratings (numeric or alpha scores) are regularly used by firms, and there is no clamour for their removal. Over 55% of respondents say their firms use ratings for employees, while 44% use them for management and 38% for partners. (The lower rate for partners may simply reflect the number of firms still operating a form of lock-step model in the firms we surveyed.) The use of ratings increases noticeably with the size of the firm. Thus, over 80% of organisations with a headcount of above 1,000 use ratings for the assessment of employees, while 50% and ca. 70% of them rate their partners and senior management respectively.

The scarce use of forced rankings appears to indicate that a significant part of the current debate is simply less relevant to most PSFs. While companies such as Accenture and GE trumpet change, they are dismantling aspects of a performance management process that the PSFs (we have sampled) never adopted in the first place. With respect to ratings, despite the popular call to “kill performance scores”, only 7% of firms consider axing ratings a priority. Moreover, just as many firms 18% are considering introducing ratings. Please see

Figure 3 in section 3.5 for more detail.

Our take is that forced rankings are a blunt instrument, inappropriate for most PSFs – or indeed in any business where talent is scarce. This is simply because a forced rankings process focuses on individual deeds and results and thus reinforces behaviours that are highly competitive from within; at the same time, forced rankings discourage the type of collaboration that is focused on increasing the competitiveness of the firm as a whole. From our consulting


experience, we know that a performance category labelled “collaboration” does not mitigate individualistic behaviour.

As the same time, ratings and rating scales do serve a worthwhile purpose as they enable a degree of quantification – but only if they are well-designed. This means they need to operate across a variety of factors that go beyond personal financial results, be used in a judicious manner and not seek to blindly “objectivise” or replace human judgment about an individual’s performance when they support promotion, remuneration or other management decisions.

3.2. Frequency of formal and informal performance feedback

There is a clear desire – and need – for more regular formal and informal performance feedback discussions.

We first reviewed the degree to which formal and informal feedback on performance or progress is communicated to partners, employees and management team members alike. We define formal feedback as planned, structured and documented conversations; we deem informal feedback as unstructured, ad hoc conversations without documentation. The research demonstrates that there is a clear desire for more regular formal and informal feedback across all roles.

Currently, over 50% of firms only provide formal feedback to partners once a year or less (5% of respondents say there are no partner reviews at their firm). For managers and employees, feedback is provided either annually 48% or semi-annually 41%.

In the legal sector, both employees and management team members see less frequent reviews, typically annual. Firms of 500 – 1,000 employees in size, the category mostly represented by law firms in our sample, report no quarterly formal feedback at any level and around 82% of them provide feedback to partners once a year or less often. Outside of the legal sector, feedback to partners is more frequent; up to 20% of respondents indicate that partner formal reviews are done on a quarterly basis.


Figure 1: Formal feedback - Current and Desired Frequency

When asked about the desired frequency, around 70% of respondents suggested that formal feedback for all roles1 should be given on a quarterly or six monthly basis, with the majority giving preference to quarterly feedback. However, partners, CEOs and MPs continue to prefer annual feedback; perhaps this reflects the onerous workload associated with partner reviews that tie-in to annual remuneration decisions. Figure 1 makes graphically visible the gap between

the current low frequency of formal feedback provision and the desired higher frequency.

The desire for more frequent formal and informal feedback highlights some of the challenges facing PSFs. Gone are the times when professional services firms could plan for years ahead; market conditions today require ever increasing agility and flexibility. Goals set at the beginning of the year may, and likely will, become obsolete before the year is out.

The ability to respond quickly to any changes in the competitive environment is essential, and a process that allows more frequent performance management discussions can serve as an effective leadership tool to retain agility. A fast, fluid and, importantly, forward-looking performance management process that encourages regular conversations about the business is one key supporting element allowing firms to achieve such a rapid response to changing circumstances.

1Partner, employee, and management team members


3.3. Project-based feedback

Project-based feedback remains the domain of the accounting sector.

Professional services firms are yet to fully embrace ‘after action’ reviews, or project-based feedback that is provided at the end of every engagement. Only in the accounting sector is project-based feedback routine. Over 50% of respondents report that after action reviews take place regularly, and 20% report that providing project-based feedback is “part of how they work” - compared to only 3% of law firm respondents. On average, around 70% of participants across all other sectors, geographies and firm sizes indicate that after-action reviews only happen occasionally or rarely.

The poor utilisation of after action reviews is something that PSFs should address. Project-based feedback provides one of the most reliable data series for performance management purposes, and it is likely to encourage more contemporaneous and insightful feedback. Furthermore, ‘after action’ reviews are essential for professional services firms that are serious about identifying process efficiencies and creating more productive and profitable firms. In the “more for less” age where clients expect greater value, more certainty and less expense, project-based feedback should be an indispensable part of any performance management process.

For those who are rethinking performance management, there is an interdependency between the regularity of after-action reviews and the perceived effectiveness of the performance management process. Respondents that reported doing after-action reviews ‘always’ or at least ‘regularly’ perceive the overall periodic review process to be effective. On the contrary, participants that reported having after-action reviews ‘rarely’ or ‘never’ tend to assess the overall periodic review process as at best neither effective nor ineffective.

3.4. Select Aspects of Performance Management: Importance v Effectiveness and Skill

Professional Services Firms do not view themselves as managing the most important aspects of performance in an effective way.

We tested for which aspects of performance management respondents deemed most important, and then compared these most important aspects to perceived effectiveness and skilfulness. As we expected and as shown in Figure 2, there remains a substantial gap between importance, effectiveness and skill.


Figure 2: Importance, Effectiveness and Reviewer Skills

We highlight the following three issues:

Honest feedback and a shared understanding of individual performance are of the highest importance. Respondents deem receiving honest feedback and having a shared understanding of personal performance between the reviewer and reviewee as the most important aspects of performance management. This holds true across all demographic groups; it applies particularly to the accounting sector where 93% and 85% of respondents respectively rank the two as the most important aspects of performance management. There is room for improvement: one of the top three priorities for change is developing the skills of participants in the performance management process.

While performance management’s impact on fair remuneration outcomes is deemed important, performance management processes as currently applied don’t tie to remuneration effectively– and reviewers lack skills in providing clarity around remuneration. While 59% of participants see fair remuneration decisions as an essential precondition of performance management, the majority of respondents report the performance management process to be ineffective in materially contributing to fair remuneration outcomes. Respondents also believe that reviewers are not skilful at providing clarity around these outcomes.

Having clarity about learning and development needs and understanding career choices for reviewees is viewed as a less important part of performance management. As a result, the majority of respondents agree that reviewers tend to lack skills in identifying learning and development needs and discussing options and choices for career development, including choices and options. The relatively low score of importance for career development


could be attributed to the fact that this topic often sits outside the performance management process in PSFs. Alternatively, the relatively linear career structure within most PSFs may contribute to making this aspect of performance management less important.

In our view, an effective performance management process needs to enable all of the above factors. We are surprised, for example, that only 60% of respondents deem the performance management process as being vital in delivering sound remuneration outcomes and clarity around career choices. It could well be that the opportunity of an effective performance management process remains less well understood among our respondent firms.

3.5. Leading priorities for improvement

Process simplification, skills development and the implementation of online reviews are leading priorities for improvement.

Our respondents broadly agree that simplifying the performance management process, developing partner and manager skills and implementing an online appraisal system are the top three priorities for improving the periodic review process in the next 1-2 years.

Figure 3 illustrates:

Figure 3: Priorities for the Future

We consider these three priorities in turn:

Process simplification. Throughout our study, respondents showed a strong desire to simplify performance management processes. Over 70% of participants indicate that simplification is one of key priorities, with over 50% of respondents ranking simplification as the key priority.

Simplification is also supported by the primary purpose of performance management: to be a leadership tool ensuring the alignment of individual


behaviour and contribution with the firm’s overall goals. More frequent conversations, along the lines we discuss above in section 3, could reduce the administrative burden associated with performance management – a central challenge for the Managing Partner and HR team when designing the process.

Partner and manager skills development. Improving training in performance management skills for partners and managers is a leading priority for ca. 80% of respondents’ firms, across most demographic groups. In fact, on average, over 40% of respondents ranked reviewer skills as the top priority; the percentage rises to 48% in smaller firms with headcount under 500 employees and 41% in law firms.

Without doubt, one of the challenges when performance management “is done” only once a year is that relevant skills (gaining consensus around objectives, giving and receiving feedback, performance decision-making etc.) cannot be regularly practised. Making performance management a more regular, ongoing process – with regular formal and informal interactions – will allow participants to develop and hone their skills. We posit that with skills will come confidence, and many of the ‘human’ barriers to regular performance management would slowly disappear.

Implementation of an online appraisal system. Just over 50% of respondents suggest that implementation or an update of their online review systems is a key improvement priority for the next couple of years. We address technology in section 4.8.

3.6. Inputs into the Performance Management process

Personal financial results remain the dominant inputs in partner reviews; behaviour and job-based capabilities matter more for those who aren’t partners.

Figure 4 illustrates the relative importance respondents place on individual inputs into the performance management process.


Figure 4: Inputs for Periodic Reviews

For partners, our study shows that inputs for partner reviews remain heavily financially-based, with a particular focus on individual financial performance. Fewer than 50% of respondents report that their firms use at least four different inputs for reviews, and only 20% report using six or more inputs. The focus on personal financials is stronger in Australia than it is in the UK, and law and accounting place more importance on personal financials than does any other sector within professional services. Job-based capabilities is one of the least used inputs for partner reviews, with only ca. 20% participants indicating this to be a key input.

For non-partner employees individual financial performance is also deemed an important input, yet it is seen of much less relevance for management team members where team-based financial performance is of slightly higher importance2. For both employees and management, previously set objectives, personal behaviour and job-based capabilities are the top three inputs in periodic reviews.

Owners of the process and HR professionals in particular stress the importance of financial performance metrics3 ahead of other inputs. For example, 86% and 70% of respondents who are process owners and HR professionals see individual financials as the key input for partner and employee reviews, respectively; this compares to 54% and 45% for the entire respondent base.

From our consulting experience, we know that PSFs continue to struggle with inputs to their performance management process. In our view, good personal

2 Still, team-based financial performance is not seen as important for management teams as it is for partners: it is used as an input by 27% and 43% of firms for the two groups respectively. 3 “Financial performance” likely means different things (billings, hours, realisation, profitability, etc.) in different firms, which may colour the importance that respondents place on it.


financial performance is primarily a result of a number of factors. Some of these factors are behavioural and thus are in a partner’s control. Yet to deliver “high numbers” a partner requires a number of collective aspects to work effectively, including the behaviour and results of his/her partner peers and the quality of his/her firm’s strategic platform and operating model. In short, good financials are a result of the collective (firm, partnership, individual partner) having done the right things over an extended period of time. Perhaps respondents continue to see a PSF as a collective of individual partners, with each partner being his/her own business unit. We posit that a more balanced approach, and a healthy emphasis to team performance, would make for more client-centric and innovative, and all out even more successful professional services firm.

3.7. Link between Performance Management and remuneration

The link between the outputs of a firm’s performance management process and remuneration-related outcomes is not nearly strong as we expected it to be.

Figure 5 summarises our respondents’ perception of the link between performance management and remuneration in their firms.

Figure 5: Link of performance management to remuneration

Around 60% of respondents report a strong or a very strong link between their firm’s performance management process and decision-making on remuneration. The link is strongest as applied to partners (60%), and at its lowest (barely 50%) for management team members. While it is still the majority, it means that participants from almost half

of the firms do not perceive the two processes to be strongly linked.

Respondents from smaller firms tend to report a weaker link to remuneration across all roles. For example, in the firms with headcount of 250 and less, ca. 15% of respondents see a very week to partner remuneration. For comparison, this percentage drops to ca. 2% for the firms with a headcount of over 1,000 employees. On this issue, we also see certain geographical peculiarities. The link to partner remuneration in Australia is seen as weaker than it is in the UK, with as much as 15% of participants suggesting that it is very weak. This relationship, however, reverses for employees and management team members where UK firms are seen to have a weaker link.


While it did not surprise us that there is a connectivity gap between performance management and remuneration outcomes, the size of gap did. From our consulting experience, we know that the weak link between performance management and remuneration is primarily due to fact that most PSFs deem performance management just as “something that has to be done” – in addition to budgeting and the annual remuneration round – because it’s deemed “good practice” to do. Performance management often simply isn’t seen as a leadership tool to align reward to behaviour and contributions that further the firm’s objectives. Another possible explanation is the lack of transparency in many firms about how performance links to reward.

The link between the two processes needs to be a strong one. It is best practice for performance management to be part of the business planning process and to feed into remuneration decisions. Firms would run much more efficiently if these three were not seen as separate processes but as part of one and the same – this would allow them to simplify performance management (simplification being one of top 3 priorities for change as our study indicates).

3.8. Use of technology

Performance analytics and performance management technology in professional services firms are in their infancy.

The use of technology for performance management remains low and underused for partners, employees and management team members alike. Among the five tools and methods of periodic reviews that we tested for, technology scores last. Only 40% of respondents suggest that online reviews are used for the assessment of employees; the number falls to below 30% for both partners and management.

Figure 6: Use of Performance Management Technology by Firm Size

However, there is a strong link between the use of performance management technology and the size of firm. The larger the firm, the more likely it is to have implemented online reviews, as can be seen in Figure 6.

Technology could and should be the enabler for more frequent, briefer performance

conversations and thus a more efficient performance management process. Technology should not dictate the design of the process but reflect and enable the new approach. By moving beyond paper-based procedures, firms can streamline the process for both participants and administrators.


Another prominent issue for HR specialists across all industries is the emergence of HR Analytics (the application and analysis of data to produce actionable insights about people and performance). While some PSFs, particularly larger ones, have joined the HR Analytics journey, many are yet to embark on it. Just over 15% of respondents suggest that using performance analytics is “part of how we work” on the firm-wide basis. This falls to 10% when looking at the use of analytics at a department, business unit, team or individual level. Even when they are used, most often performance analytics are used with respect to business units and teams rather than individuals.

Analytics represents a sea change for the HR discipline: a shift towards evidence-based decision making that will require improved competence in areas such as statistics and data visualisation - However, the potential benefit to firms is enormous, with decisions in areas such as recruitment, promotion, reward, and learning and development all within the HR Analytics frame.

3.9. The role of Human Resources

HR professionals are yet to defend their right to a seat at the performance management table for partners.

While a progressive people business agenda implores that “human resources” has a seat at the management table, the reality still suggests a gap when it comes to partner performance management. Only 40% of respondents reported that HR professionals are highly involved in the process; a staggering 25% suggested that they are not involved at all.

Our study also suggests that there is a difference in perception between the process owners (CEOs, MPs) and HR professionals. Thus, ca. 80% of HR respondents see themselves as at least somewhat involved in the design and implementation of partner reviews, whereas only 66% of process owners (i.e. Managing Partners) see HR as somewhat involved. Moreover, while 83% of HR professionals believe they should be highly involved in the process, only 41% of process owners want their HR team highly involved.

Broken down by respondent group, it is worth pointing out that HR professionals are least involved in the partner performance review process in the accounting sector and in smaller firms of less than 500 headcount. Also, as expected, HR is heavily involved in the design and implementation of periodic reviews of employees – over 80% of respondents report ‘high involvement’. This is particularly true for larger firms of above 500 employees. Yet, HR appear to be less involved in senior management reviews with just under 60% of respondents suggesting ‘high involvement’. The difference in perception between HR professionals and process owners exists here as well – with 69% of HR representatives reporting that they are highly involved and only 46% of process owners agreeing with them.


Figure 7: HR Current and Desired Involvement Partner Reviews

We encourage HR professionals to continue seeking a seat at the management table for partner performance. It is regrettable that many owners of the process still do not see a place for HR professionals in the design and implementation of the review process for partners. Given how partner performance management incentivises leadership and culture, excluding HR – the firm’s custodians of leadership and culture – makes little sense. Simplifying how

performance management is done in PSFs represents an unrivalled opportunity for every HR leader to engage with partners and staff to rethink their firm’s approach to performance management. It is our strong impression that HR is going through a transformation today that finance went through decades ago in establishing itself as an area of expertise deserving a seat at Board level.


4. Evolving Performance Management in PSFs

A one-size-fits-all answer to “How should we undertake performance management at my firm?” does not exist – and we do not seek to propose here a single “best practice” approach to performance management in professional services firms. The reality is, best practice in performance management is not prescriptive: each firm needs to work out the right approach, which will largely depend on the firm’s

– Goals and ambitions – Partnership structure – Market positioning, size and organisational culture – Geographical context of market practice

That said, there are certain practices that form a solid foundation of an efficient and effective performance management process in professional services firms.

Adjust leadership approach. Make it important: establish good performance management “ways of working“– and related partner skills and positive partner behaviour – as part of your firm‘s cultural DNA. Improving reviewers’ skills in areas such as coaching, feedback, objective-consensus and decision-making is essential. As is the engagement of senior HR professionals in partner performance management.

Make Performance Management and Remuneration part of business planning process. In our view, performance management should form part of the firm’s business planning and budgeting processes. At the same time, the firm’s performance management process should feed into and be the primary source for the firm’s compensation / remuneration process. These three processes are closely interlinked and are best not considered as stand-alone as remains common practice at many firms today. We question how a stand-alone performance management process can be in any way supportive of an organisation achieving its strategic and operational goals. Figure 8 illustrates:

Figure 8: Relationship between Business Planning, Performance Management and Remuneration


We do not advocate a big annual process at or after year-end, which is inefficient, puts a big strain on the firm for a couple of months, and tends to focus on past performance rather than being forward-looking. Instead, we would suggest keeping a constant time horizon and conducting business planning and performance management on a rolling basis, i.e. planning out for 12 – 18 months irrespective of whether the planning horizon coincides with a financial year end or not.

Increase frequency of formal and informal feedback for a more efficient process. The desired frequency as indicated by the survey respondents, in our view, very closely represents best practice. It also raises an important point: formal feedback does not need to take the same form at every interval. It is possible to design a quarterly process that has a comprehensive annual component (and supports remuneration decisions), while implementing briefer “check-in” style discussions through the remaining quarters of the financial year.

The actual cadence of formal reviews and informal conversations has to be a function of the firm’s size and its business model. As discussed above, for professional staff it is also very important to provide project contribution indications at the end of every project / engagement, and this preferably should be forward-looking.

In our experience, three key elements can help ensure that both formal and informal feedback provision happens more frequently in the future:

– Clean process design, – IT support, and – Leadership coaching for the reviewers (including partners)

Evolve the use of tools and methods. We recommend that:

– Self-assessment form. Should not be used as the only means of assessment. Instead, should be used to ensure reviewees can tell their contribution story, and be one of many inputs into the assessment process.

– Ratings. Should not be used to “reduce” a person to a number or a letter, but can be used as a way of assessing contributions across a set of agreed areas and results. If these are used as a tool for input on decision-making across a variety of balanced factors, with subjective judgment applied to the results, they can be successfully used.

– Moderation meetings. These are great for understanding properly used ratings and should be a general best practice. But they need to be done regularly, consistently and to a firm-standard that has been developed and in that reviewers have been trained.

– Forced rankings. These should not be used as a basic formula with little to no judgment applied. Forced rankings may be detrimental to morale, emphasise individual performance at the expense of team performance, and entrench inequities and bias in the assessment process.

– Performance management technology. Increasingly an essential tool, but only to support well-implemented process and system – in fact, IT implementation can be used as a platform to streamline these. It is important


to note that there have been challenges for PSFs wanting to introduce performance management technology, with some corporate solutions not easily adapted for law firm use or too highly priced. The emergence of industry-specific providers now means that performance management technology is more affordable for mid-sized and smaller firms. Accordingly, we would expect use of technology figures to rise dramatically in the next 5 years.

– 360-degree feedback. Traditional 360-degree tools are better used as development tools given their behavioural focus. Simplified tools that can broaden the feedback base by seeking input from others could enhance the performance management process; however, we would argue against “adjusting” this personal development tool so as to become a direct input into remuneration, especially if its use for this purpose is not transparent.

– Project-based feedback. An underused tool. Contemporaneous, valulable feedback that can support both individual development as well as process improvement.

– Client input / Net Promoter’s Score. In our view should only be used as a development tool, not as a primary, individual performance management / remuneration determination tool.

Create a tight link between performance management and remuneration. We suggest that the remuneration determination process cannot be “divorced” from performance management. Yet, the two should not be considered as one and the same. The outcomes of the performance management process should be treated as an input into a separate, independent remuneration determination process. We would not advocate that performance management information is a direct, “hard” input – rather one of many inputs, and one that requires subjective judgement. It is important, in our view, that the two processes are aligned in that each considers the same set of metrics, to the degree it is possible.

Furthermore, we would suggest that for partners and senior management:

– Impact on remuneration depends on the system in place; – All inputs required for running the business should also form an input for

partner performance management; – Subjective judgment is applied when a decision on the remuneration

outcome is being made, based on relativities.

Beyond individual financials: inputs into the performance management process. While individual financials are an important outcome of ‘doing things right’, we would hope to see a more balanced approach. Besides personal financial performance, we suggest firms should adopt a scorecard across other categories, such as talent, service delivery (mostly assessing the quality), relational capital, team success, and strategic impact.


Figure 9 illustrates:

Figure 9: Balanced Approach – Inputs to Consider

Additionally, the ‘how’ is also of importance: one can look at financial output in abstract or consider it jointly with ‘soft goals’ such as willingness, effort, result, consistency, and flexibility. These overriding values will help to (a) ensure that a partner’s performance is assessed against the spirit of what is intended and to (b) reduce the potential of system manipulation.

Use technology / HR analytics. For firms operating paper-based processes, HR Analytics will remain elusive: the sheer data entry requirements will be prohibitive. However, firms with technology in place will more easily be able to structure and interrogate data to produce these insights. Tech-savvy, numerically literate HR teams will also be able to present this data in ways that have the capacity to transform how partners and managers think about performance management. By using performance management data to report firm issues and trends and by producing actionable insights, HR will be able to demonstrate that performance management is not simply about inputs (compliance). They will be able to show that the collected data is valuable, and thus performance management, with its business intelligence, is a critical business tool.

Consider evolving performance management step-by-step. Performance management is in transition. Like the firm it serves, performance management is becoming more agile and flexible in order to respond to an increasingly dynamic business environment. The table in Figure 10 provides some concluding examples.


Figure 10: Today and Tomorrow of Performance Management

Traditional approach Future approaches

Annual formal reviews Quarterly / six monthly formal reviews

Assessment focused Dialogue-focused

Periodic collection of feedback Just-in-time project-based feedback

Annually updated objectives Ongoing objectives updates

Single source feedback Multi source feedback

Paper-based, bureaucratic form-filling Online, simple and intuitive systems

Personal financial metrics Personal and team financial metrics

Personal competency focus Team competency focus

Narrow focus on outputs Balancing inputs and outputs

Opaque remuneration process Transparent remuneration process

Compliance focused Business intelligence, analytics focus

HR driven Supervisor, employee and HR driven


5. About the Authors

Ray D’Cruz, CEO, SkillsScorecard

As a former lawyer and head of L&D, Ray designs solutions that meet the complex needs of firms while ensuring a simple user experience. Over the past 15 years Ray has worked with legal, accounting and engineering firms in Australia, North America, Asia and Europe. He is a member of the judging panel for the Annual MPF Awards. Maria Georgakopoulou, Analyst, KermaPartners

Maria advises professional services firms on their strategy, organisation and key client account management. She has worked on a number of projects with clients across the UK, Europe and Australia. Polina Pavlova, Consultant, KermaPartners

Polina advises professional partnerships on all aspects of their organisation, in particular partner remuneration and profit sharing, governance and succession planning. Polina has been involved in a number of partnership structure and remuneration projects in the UK, Eastern Europe and elsewhere. Michael Roch, Managing Director, MHPR Advisory Services

Michael has brought commercial success to strategic alliances, corporate joint ventures and professional partnerships for his entire professional career. A substantial aspect of his work relates to partner remuneration and performance management systems as key requirements for successful strategy execution. He has worked with domestic and international professional firms inside and outside the professional services sector across Europe, North America, Africa and Asia. He’s an MPF Annual Awards judge and Co-Chair of the IBA’s Law Firm Management Committee’s Structure and Governance Division. He also leads the Partner Performance and Compensation Think Tank of SkillsScorecard. Until the end of 2015, Michael was a Partner and the CEO of KermaPartners.

The authors are deeply grateful to Rupprecht Graf von Pfeil, Partner, KermaPartners for his superb early input on the design of the survey and on the results analysis. We are also grateful to the whole Managing Partners’ Forum team, in particular to Richard Chaplin and Paul Lemon for organising and promoting the survey through MPF’s membership.


Appendix A: Respondents’ Profile

The survey was open for participation for representatives of professional services firms. In total, 227 people responded to our survey:

– Coming from 19 countries, with the majority based in the UK (61%) and Australia (22%);

– Coming from firms of different sizes – from very small founder-led business to some of the largest organisations in the world;

– For performance management process designers and owners, reviewers at different levels as well as those being reviewed;

– In sectors such as law, accounting, consulting and some other.

Figure 11 below illustrates the mix of respondents’ backgrounds.

Figure 11: Respondents' Profile

performance mgmt in the professions study

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