Updated: Sep 8, 2020
Most professional firms will be under severe strain in 2020, and maintaining a cohesive partnership will be a priority for leaders. Managing partner compensation in a way that fosters co-entrepreneurship will be a key enabler of partnership cohesion during the times to come.
Here are 5 key takeaways from our report, a collaborative effort between software company Performance Leader and MHPR Advisors:
1. Production Outweighs Entrepreneurship
First, unsurprisingly, business development usually ranks as the most or the second-most important measure impacting partner reward. Yet a staggering three-quarters of our respondents name production measures and their many variations as the most important. We provide some ideas about how emphasizing measures around co-entrepreneurship could feature more to help carry your firm through the crisis to come.
2. Top to Bottom Spread Increases
Second, an average top to bottom spread of 3:1 to 5:1 has become the norm, and the trend favors increasing spreads. We explain how to systemically mitigate the risk of high spreads on partnership cohesion.
3. Poor Performance is the Elephant in the Room
Third, only about 30% of our respondents agree or strongly agree that their firm’s partner review process adequately helps addresses poor partner performance. Can this be improved? We suggest a systemic approach for addressing an age-old partnership problem.
4. Partner Compensation Efficiencies
Fourth, while 74% of our respondents say their partner compensation system is effective, only 52% deem their compensation management processes efficient. We share initial steps to increase efficiency in the digital age.
5. Internal vs External Focus
Fifth, partner compensation systems accommodate partners in both client-facing and firm-management roles in only 31% of cases. This undervalues leadership and risks undermining partnership cohesion. We show how to make the implicit explicit.
The importance of getting partner compensation right in times of Covid-19
Even before SARS-CoV-2, professional firms were facing clients demanding reduced costs and price certainty, disruption through technology and diversifying sources of competition.
Covid-19 has exacerbated these challenges. Remote working has been normalised, causing changes in firms’ property and IT infrastructure cost structures. While litigation, regulatory, tax and investment services thrive in times of uncertainty, clients are delaying spend on transactional services and discretionary advisory budgets. Anticipated revenue streams will change for all firms; how well they will cope with this change depends not only on the agility of their business model but also on partnership cohesion and reserves available for investment.
As we learned during the Global Financial Crisis, strong and cohesive professional partnerships are resilient in times of economic turmoil. Protecting revenue is among partners’ most important tasks in the short-term, and many have risen to this challenge. Yet managing and compensating partners for their contribution – the focus of our survey – is key to maintaining strong and cohesive partnerships that remain profitable in the medium-term.
Download a .pdf copy of the 2020 Equity Partner Contribution & Compensation Survey.