6 Beyond the numbers: quantifying performance

 

Any law firm will keep track of performance. Performance on the firm level, but also on the individual partner level. It is in the very nature of a partnership that all partners contribute. Jointly the partners are the owners, individually they are spearheading the workforce. This is different from other companies where mostly the shareholders are not the means of production. In a law firm partners are also the product.

 

Driven by principles of fairness of remuneration versus contribution, law firms will want to track performance and contribution on the individual partner level. Those who contribute more will be rewarded and those who contribute least must as a minimum be encouraged to work more and become more effective. Being an equity partner is not a free ride; it comes with obligations.

 

Performance tracking is also used as a key for determining partner compensation. There will inevitably be a subjective element in deciding on partner compensation. But at least one wants to pretend that compensation is based on hard and objective facts. In this chapter we will examine the different components that are most commonly tracked. The first part covers financial criteria: revenue, origination, utilisation, profitability and related metrics. The second covers the non-financial dimensions: collaboration, firm building, and contribution to the collective.

 

A bit of history

Measuring performance is a critical turning point in the history of law firm structures, as it represents the moment the profession began to adopt the metrics of industrial management. While law firms have existed for centuries, the systematic tracking of individual partner performance is a relatively modern phenomenon that gained momentum during the mid-20th century.

 

For much of the late 19th and early 20th centuries, many firms operated on a black box or informal seniority system. Partners generally shared in the profits based on their tenure or a handshake agreement. There was often no formal tracking of billable hours or individual revenue generation because the partnership was viewed as a stable, fraternal guild where everyone's contribution was assumed to be sufficient. Performance was judged qualitatively through reputation, client relationships, and internal standing, rather than through a spreadsheet.

 

The shift toward quantitative tracking is often traced back to Reginald Heber Smith, a senior partner at the Boston firm Hale and Dorr, now part of WilmerHale. In 1940, Smith published a series of articles in the American Bar Association Journal titled 'Law Office Organization.' He introduced what became known as the Hale and Dorr System, one of the first formal attempts to calculate partner compensation based on three distinct categories: work performed, business brought in, and profit. This was a revolutionary departure from seniority-based pay, as it provided a mathematical formula to determine a partner's value to the firm.

 

The move toward tracking performance accelerated in the 1950s with the broader adoption of the billable hour. In 1958, the American Bar Association published a pamphlet titled 'The Lawyer's Economic Plight,' which encouraged firms to track time meticulously to ensure they were capturing all costs. This turned the lawyer's time into a quantifiable unit of production, creating a baseline metric that could be used to compare one partner's productivity against another.

 

The 1980s marked the industrialisation of law firm performance tracking. This was driven by the rise of legal trade publications that began publishing financial data, such as profit per partner, which turned law firms into competitive entities on a national and global stage. To protect their rankings and prevent their stars from being poached by rivals, firms began using computer systems to track real-time data on every partner's billables, collections, and realisation rates. This era saw the death of pure seniority models in many firms, replaced by merit-based systems where the data effectively dictated the pay scale.

 

David Maister transformed the landscape further by shifting the focus from financial indicators to behavioural ones. Before his work gained prominence in the 1980s and 1990s, most firms measured performance through the rearview mirror of billable hours and fee collections. Maister, through his seminal work Managing the Professional Service Firm, argued that these metrics were symptoms of success rather than its causes. He insisted that a partner's true value lay in their commitment to client service, skill development, and firm-wide collaboration, not just their short-term financial output.

 

Maister also popularised the Finders, Minders and Grinders categorisation of partners, but he warned that measuring only Finders leads to an intellectual and cultural hollowing-out. His influence led many firms toward balanced scorecards that measured intangible contributions alongside revenue: knowledge sharing, mentoring, and the institutionalisation of client relationships so they survive the departure of the originating partner. His legacy in law firm compensation is the move away from the billable hour as the sole measure of worth and toward the partner as steward of the firm's future.

 

 

Not all revenue is equal

The number-one indicator which is universally tracked is revenue. This is considered the most crucial lifeline for a firm's existence. If revenue stalls, soon bills and salaries cannot be paid and even partners might start to leave, creating a downward spiral which could even lead to the firm's collapse. So, yes, revenue is indeed an important and crucial parameter to track.

 

On the face of it, tracking revenue seems rather straightforward. But is it? To calculate revenue, law firms generally just take the sum of all invoices that are sent out by the partner during one fiscal year. Out comes a number, the question is how relevant this number is. For starters, more often than not, the firm fails to take into account whether all these invoices actually get fully paid by the client. Sending out an invoice is one thing, collecting the money is something entirely different. We regularly perform financial analysis and you might be surprised how much time sometimes elapses between doing the work, sending the invoice, and final payment. Regularly clients demand a discount after the invoice, other invoices have to be completely written off. Since this typically does not emerge in the relevant fiscal year, it is not taken into account and therefore not subtracted to adjust the revenue.

 

It might seem logical to focus on the top line. If it is revenue that is needed to pay the bills and keep the firm running, it seems irrelevant where that money comes from. But this is not entirely the case.

 

Take two partners who both, for the sake of simplicity, generate one million in revenue. Partner A generates the million through ten mandates of a hundred thousand each. Partner B generates the same amount through a hundred matters of ten thousand each. On paper both partners are equal, but in reality they could not be more different.

 

Partner A has worked on large mandates that are important to the client and that provide visibility and experience which will help build a reputation. Partner B works on small mandates that are of no strategic importance to the client and that have no value in building a reputation. Not only that, but smaller mandates are less efficient to work on and, perhaps counter-intuitively, more frequently lead to disputes about the invoice. While both partners contribute equally to paying the bills, their actual contributions to the firm are very different. It is surprising that this factor is hardly ever taken into account.

 

 

Origination

After revenue, the second metric most commonly tracked for partner compensation is origination: a record of who was responsible for bringing in a client or mandate. Where the partner who acquired the work also does all of it, the question is straightforward. Complications arise, as they invariably do, when origination and execution sit in different hands.

 

The most common version of this problem is the cross-practice mandate. An M&A transaction may require substantive input from competition, tax, finance, real estate or employment specialists. Those contributions can be decisive; a merger that fails to clear regulatory review is no merger at all. Yet the origination typically sits in the name of the M&A partner who landed the instruction. The other partners are credited for billable hours. The revenue, and the reputational weight that comes with it, belongs to the partner who made the first call.

The damage to younger partners is more insidious. A newly appointed partner with an empty book of business will often spend their first years supporting a more senior partner's mandates. They do the work; the senior partner holds the client. The result is that the young partner accumulates neither revenue in their own name nor a client base of their own. The senior partner, meanwhile, accumulates both credit and influence. This arrangement can persist for years, creating a structural dependency that serves the senior partner's interests rather than the firm's.

 

A related problem is duration. In some firms, the partner who first brought in a client retains origination credit for as long as that client remains with the firm, regardless of who has been doing the work. We have encountered situations where a partner made little or no meaningful contribution to a client relationship for years, yet continued to draw a substantial share of that client's revenue through origination credits alone. The partnership around them knew it. The resentment was proportionate.

 

Not all origination, it should be said, is the product of deliberate business development. Partners who represent the firm at the IBA or serve on external boards do so at the firm's expense, building networks on the firm's behalf. When a mandate arrives through those channels, it is the firm's investment that generated it as much as any individual's effort. Partners who inherit a client from a predecessor, which was common across the generation now approaching retirement, carry that book of business forward, but the origination credit, strictly speaking, belongs to someone who has already left.

 

The core difficulty with origination as a performance metric is that it measures a single moment, the initial acquisition of a client, and treats it as the definitive statement of a partner's commercial contribution. It systematically underweights everything that happens after that moment: the sustained relationship management, the cross-practice introductions, the deep institutional knowledge that makes a client relationship genuinely sticky. As a measurement tool it is crude. As a compensation driver it can be corrosive, and the problems it creates, among them client hoarding, generational inequality, fiefdoms and the suppression of collaboration, are examined in depth in Chapter 10.

 

 

Utilisation

Measuring revenue and origination are the two most basic factors taken into consideration for partner compensation. As we have outlined, the assumption that these are objective criteria does not hold. Both are highly subjective and disfavour young partners in particular. That is why, in order to achieve a fair compensation system, other criteria must be taken into account.

 

Any law firm consists of partners and associates. The partners own the firm and the associates are the employees. The ratio between partners and associates is called leverage and it could vary between 1:2 and 1:15 or above. An industry average, if there is such a thing, would probably be around 1:4.5. Associates play a crucial role in generating profit and the key is in the mark-up, which is the difference between salary and revenue. If an associate earns 200,000 including bonuses, charges an hourly rate of 350, and makes 1,600 billable hours, that amounts to 560,000 in revenue and generates a profit of 360,000. If a partner has a team of 4.5 associates who are all equivalent, that team generates 1,620,000 in profit. If the partner worked alone with no associates and also achieved 1,600 billable hours, they would have to raise the hourly rate by 1,000 just to compensate. The associates are the real profit generators in any law firm.

 

The number of billable hours an associate produces as a percentage of available time is called utilisation. For budgeting, law firms calculate with a fixed number of billable hours per associate, typically around 1,500. A normal employee working for a commercial company would work around 1,800 hours after deducting holidays, so for a lawyer to budget 1,500 hours still leaves 300 hours for professional education and other activities. Utilisation is expressed as a percentage of budget hours. One thousand five hundred billable hours is 100%. Anything above 100% goes directly and in full into profit, which is highly attractive.

 

In my opinion, utilisation is perhaps the most important metric for any law firm. Surprisingly, most law firms do not take this into account when deciding on partner compensation. What is more, most firms do not even track utilisation properly. The first prerequisite is time entry. Lawyers are surprisingly undisciplined when it comes to entering the timesheet. Even though systems have become easy and convenient, lawyers and partners alike cannot be bothered by what they perceive as an administrative burden. Some billable hours inevitably get lost. The consequence is also that utilisation data becomes unreliable. What is the use of a utilisation percentage when you do not know if all hours were entered? The second prerequisite is compensating for vacation and sick leave. If an associate's utilisation is lower than expected, is this because they did not work enough, or because they were sick or on holiday? Typically the timekeeping system is not connected to the HR system that tracks these things.

 

None of this is rocket science. It does not require a lot of effort to track whether associates are entering time, and it is not complicated to account for holidays and sick leave. We help clients develop such dashboards all the time, and we are not software engineers. Mostly it is about awareness, recognition and the will to make it right.

 

In my experience, utilisation is undervalued and partners do not fully understand its relevance for profitability. We still see partners making a lot of billable hours themselves while their associates remain under-utilised. For these partners it may feel as if they are doing the right thing by working super hard. In reality they are harming the firm, and if they get overworked, ultimately harming themselves. For any law firm it makes sense to track utilisation meticulously. For any firm with a modified lockstep, I would recommend including utilisation in the compensation criteria.

 

 

EBITDA

EBITDA, Earnings Before Interest, Taxes, Depreciation and Amortisation, is increasingly used to assess the operational profitability of a partner's practice. It allows a firm to distinguish between a partner who generates high revenue through expensive, low-margin work and a partner who generates more modest revenue with genuine efficiency. Without this lens, a firm can easily over-compensate high-revenue partners while undervaluing those who actually contribute more to the bottom line.

 

Calculating EBITDA at the partner level requires a shadow profit-and-loss statement that attributes both direct and indirect costs to a specific practice. The starting point is gross fees actually collected. From this, direct costs are subtracted: the salaries of associates and paralegals working on the partner's files, plus specific disbursements. A proportional share of overhead, office rent, IT, marketing and administrative staff, is then allocated, typically per capita or based on the partner's share of total billable hours. The resulting figure, after adding back non-cash items like depreciation, shows how much a partner's practice contributes before the firm takes its collective share.

 

The value of this approach lies in what it reveals about margin. A partner who brings in five million in revenue but requires a large, expensive team may have a lower margin than a partner who brings in three million with a lean operation. Without partner-level profitability analysis, compensation committees risk rewarding volume rather than efficiency.

 

There is, however, a real danger in making EBITDA the primary driver of compensation. When partners are paid primarily on individual margin, they tend to guard their associates, resist sharing resources, and treat every firm-wide overhead as a personal tax. A partner who knows that involving a tax specialist will increase their allocated costs may be tempted to handle the tax issues themselves, to the detriment of the client's advice and the firm's reputation. EBITDA is a powerful diagnostic tool. As a compensation formula it can quietly hollow out the institution it was designed to protect.

 

The right use of EBITDA in compensation is as one lens among several, not as the primary driver. It tells the committee something important about efficiency and cost management. It should not tell partners that protecting their own margin matters more than the firm's collective health.

 

 

Other financial data: WIP

While revenue and origination are always top of the list, along with utilisation if all is well, there are other financial criteria worth including. Work in Progress, WIP, describes the reservoir of billable hours registered that have not yet been invoiced to the client. Too much WIP is bad for cashflow and liquidity. It is also bad for client satisfaction. When a lawyer is on a matter and the client is seeing good progress and good results, the client is much more likely to pay the invoice happily than when considerable time has elapsed between the work being done and the bill arriving.

 

WIP is typically monitored by law firms, but rarely acted upon. Partners have considerable freedom in deciding when to send an invoice, and partners are very good at arguing why it is better not to send one now. Sometimes these arguments are legitimate; more often they are not. Our experience shows that the longer a partner waits before invoicing, the more likely the client will want to discuss the invoice and demand a discount. Discipline around invoicing is part of the financial hygiene of a law firm. Firms should consider taking WIP levels into account when deciding on compensation.

 

 

Other financial data: realisation

Not every invoice that is sent out actually gets paid in full. The percentage of invoices collected in full is called realisation. This percentage will realistically be around 95%. Realisation directly affects profitability: any amount not collected hits the bottom line with no corresponding cost saving.

 

Partners are understandably more focused on making billable hours than on collecting after the invoice has been sent. Yet collection is crucial or revenue will be revenue on paper only. As outlined at the beginning of this chapter, all eyes are on revenue, which in many firms forms the basis of partner compensation. However, if part of this money is in the end never received, we are using a faulty measurement. Law firms need to look beyond billable hours and include collection in the parameters being monitored and taken into account.

 

 

Billable hours

Among partners, there is always anxiety about whether other partners are putting in the effort. This feeling is so strong that partners cannot stand it if they discover some colleagues are not putting in the hours. They probably know this is shortsighted, since revenue and utilisation are far more important and better represent a partner's contribution. Nevertheless, partners like to keep a watchful eye on each other's billables, which is why billable hours remain a considered criterion.

 

In truth, partner billable hours are not that relevant. A partner who makes only 1,000 billable hours themselves but has a fully utilised team is far more profitable than a partner who registers 1,800 billable hours with a team running below 80% utilisation. Putting too much emphasis on partner billables incentivises the wrong behaviour. For a firm to be successful and profitable, partners need to focus on bringing in work and keeping associates fully utilised. Partners also need to focus on training their associates, which means being available and present. Fear that some partners are not pulling their weight is not managed by monitoring billable hours. There are better indicators for that.

 

 

Measuring performance in the age of AI

The integration of artificial intelligence into legal practice will require a fundamental shift in what gets measured. When a task that once required twenty hours of associate work can be completed in a fraction of that time, traditional metrics of utilisation and hourly output stop making sense. Performance measurement will need to move from input to impact.

 

The most immediate change will be the growing importance of effective hourly rate: the fees generated per hour of human time invested. A partner who delivers a complex contract for a fixed fee using two hours of oversight has created more value per hour than a partner who bills the same amount through fifty hours of manual effort. The firm that tracks this metric is measuring what actually matters; the firm that clings to raw billable hours is measuring the wrong thing entirely.

 

Knowledge contribution will also become a harder metric than it currently is. In the AI era, a partner's ability to contribute to the firm's proprietary data, refine its processes, and develop workflows that others can use is no longer a soft cultural aspiration. It is a competitive asset. Firms will need ways to recognise and reward partners who invest in this institutional capability, which does not show up in any current billing report.

 

There will also be a shift toward outcome-based assessment. As AI handles more of the production, the partner's primary role shifts to judgment, strategy and the interpretation of results. The relevant question is no longer how many hours were worked but whether the client's problem was solved well. Compensation committees will need to develop ways of measuring that, which will be more demanding and more subjective than counting billables, but also more honest about what the firm is actually selling.

 

 

Collaboration

The most successful partnerships are more than the sum of their individuals. Revenue and origination are principally personal effort, but law firms have discovered that there is more potential when partners actively collaborate. Focusing on revenue and origination alone would probably be detrimental to collaboration. That is why most law firms carefully try to balance individualism with collaboration. Partners get rewarded if they collaborate with others. This is different from origination, which is a self-centred form of sharing. Collaboration is more altruistic by nature and requires a higher level of trust. Two partners could for example jointly decide to develop a certain client or market. Such an initiative could either succeed or fail. There is no upfront guarantee. If successful, the partners could decide to equally split the proceeds.

 

Even with a strong business case behind the concept of collaboration, efforts to stimulate it through compensation usually remain unsuccessful. When push comes to shove, self-interest typically is stronger. It is much like the well-known prisoner’s dilemma: it will only work if all parties really trust each other, and even then it mostly remains a long shot. It is much easier for a partner to focus only on revenue and origination. That will definitely deliver the biggest bang for the buck.

 

Some firms have found a way to make collaboration stick. The trick is to stop trying to reward collaboration in the abstract and instead define what it actually looks like. Did the partner refer a client matter to the most qualified colleague rather than handle it themselves? Did they bring a junior partner into a client relationship rather than keeping it personal? Did they introduce a client to another practice area when the opportunity was there? These things can be observed and tracked. When they carry a real weight in the compensation discussion, partners pay attention. The prisoner’s dilemma only holds when defecting is always the rational move. Give collaboration a concrete value in the formula and the calculation changes.

 

 

Firm building

One of the most difficult questions in designing a hybrid compensation system is determining how to account for partners' non-financial contributions. These contributions go by various names, but perhaps the most accurate term is firm building: the deliberate investment of time and effort in the two assets that any law firm ultimately depends on. The first is name, brand and reputation. The second is talent, knowledge and experience. These are the foundations that bring clients through the door, and building them over years is a critical part of any effective firm strategy. Surprisingly, many law firms do not organise or incentivise partners to invest the time required to achieve that result. There is an intuitive assumption that brand and talent will develop naturally, provided the firm secures clients, delivers good work and issues invoices. That assumption is optimistic at best.

 

The deeper reason partners dedicate residual time to firm building is that it is difficult to measure, and what is difficult to measure tends to be treated as if it is difficult to value. Partners are uncomfortable with subjectivity in any form, but in a partnership, where a peer or group of peers is making the evaluations, the discomfort is acute. How can a colleague assess my contribution to the firm's reputation, or to the development of a junior partner, or to the cohesion of a practice group, without that assessment reflecting their own preferences and blind spots? In a professional environment where scepticism is a baseline condition, evaluating firm-building contributions is genuinely difficult, and it shows in how most firms handle the problem.

 

Some firms attempt to make these contributions more objective by tracking non-billable hours. The term itself is revealing: it frames the activity as time not spent on real work, and that framing communicates a hierarchy of value before any evaluation has taken place. Other firms assign these contributions a modest weighting in the compensation formula, which sends a message of its own: these activities are acknowledged, but they are not what the firm is really paying for. Both approaches produce the same outcome. Partners read the signals clearly and act accordingly.

 

The firms that measure non-billable contributions most effectively define observable criteria that assess the value those activities deliver, not the time invested. The distinction matters. Writing articles is not inherently valuable; writing articles that are read by the clients and prospects a firm is trying to reach, and that reinforce the firm's standing in a practice area, is. Speaking at conferences is not inherently valuable; speaking at events that position the firm in front of the right audience, and that partners can point to as having opened a door, is. Observable criteria shift the question from 'did you do this?' to 'did this contribute to what we are trying to build?'

 

The other element is focus. A long list of firm-building objectives is almost as counterproductive as no list at all. If partners are asked to contribute across too many dimensions simultaneously, the probable outcome is superficial effort across all of them. The most effective approaches define a small number of goals tailored to each partner's specific role and stage of development. A senior partner with an established client base has different firm-building responsibilities from a partner who is still building their market profile. Not every partner should be doing the same things.

 

Compensation alone will not resolve this. The formula must be accompanied by a genuine shared culture in which partners understand the importance of building complex institutional assets over extended periods, rather than operating as independent practitioners who happen to share a platform. Firms that combine a meaningful firm-building component in their formula with a culture in which peer expectations reinforce the value of collective investment are better positioned for sustainable growth than those that rely on either element alone. The formula without the culture produces compliance. The culture without the formula produces goodwill that the compensation system quietly undoes. Both are necessary.

 

Firms that take firm building seriously tend to organise it around four categories. The first is people: mentoring, talent development, associate training, and the investment of time in the next generation that rainmakers rarely prioritise because it does not show up in their billings. The second is clients and reputation: the quality and loyalty of client relationships, contributions to the firm’s standing in the market, visibility in rankings and professional associations. The third is leadership and management: the partners who run practice groups, sit on committees, and do the institutional work that keeps the firm functioning. The fourth is culture and values: the degree to which a partner actively supports the way the firm wants to work, not just in words but in how they behave with colleagues, clients and associates on a daily basis. None of these categories is easy to measure. All of them are visible to anyone paying attention.

 

What a partner is expected to contribute across these categories should also depend on where they are in their career. A junior equity partner building a practice should focus on delivering excellent work and developing client relationships. A senior partner with an established book has different obligations: mentoring the next generation, transitioning client relationships to successors, contributing institutional knowledge. A system that measures every partner against the same firm-building criteria regardless of their stage is not a balanced scorecard. It is a single benchmark applied unevenly. The firms that handle this best define career-stage expectations explicitly, so that a technically brilliant partner cannot refuse to engage in people development on the grounds that their job is legal work. At some point it is part of the job, and the compensation system should say so plainly.

 

The difficulty of introducing non-financial criteria is not theoretical. IBA survey data[1] shows that close to half of law firm respondents cite a lack of partner accountability as the primary barrier to changing their compensation system, and a further sixteen percent cite fear of conflict. In a culture where partners expect to be treated as equals and where challenging a colleague on their institutional contribution is easily read as a personal attack, introducing subjective non-financial assessments is genuinely hard. That is an argument for designing them carefully, not for leaving them out.

 

 

Compensation committee

Partner compensation committees are the primary governance mechanism for allocating firm profits in systems where the formula alone cannot capture the full picture. Around 68% to 75% of large and mid-sized law firms use a formal committee to oversee pay decisions. Among the Am Law 100, the figure exceeds 90%. Smaller firms more commonly opt for a firm-wide vote or delegate the decision to a single managing partner.

 

Compensation committees are most valuable in modified lockstep systems, where non-mathematical criteria need to be evaluated and even quantitative elements carry a degree of subjective judgement, as origination so often does. In the early years of a system, the committee is usually formed by the firm's leadership, and the compensation committee and executive committee are often the same people. Because of the inherent subjectivity, partners with credibility derived from their track record, not their politics, are more trusted to act impartially. If they do a good job, the system consolidates and becomes an institution. Past decisions generate evidence for subsequent years and partners grow progressively more comfortable with the process.

 

One of the standing traps for compensation committees is the tendency to avoid hard decisions. Partners feel uncomfortable taking a tough stance with a fellow partner they have known for twenty years. Conversations become sugar-coated, the necessary messages are never delivered directly and openly, and the problems are never solved. Partners continue their bad habits. Criticism circulates behind closed doors and not during the evaluation itself. One reason evaluations do not produce the expected results is the absence of real consequences for poor performance.

 

Not all compensation committees work that way. Some partners take their role seriously and confront colleagues when needed. This requires maturity and balance: partners need to feel respected while simultaneously receiving clear feedback about what is not working. The firms that manage this well tend to have committees where the members regard the role as a genuine responsibility to the institution, not as a political appointment.

 

Some firms include an external advisor as a full member of the committee, present for preparation, decision-making and the individual conversations with partners. This creates a stronger sense of objectivity and professionalism. The advisor should be someone familiar with the firm and the industry; lawyers will be sceptical of outsiders who do not understand the context. In our experience, having an external advisor participating in the evaluation process makes this complex and difficult exercise more fluid and productive, for the firm and the partners alike.

 

The central challenge any committee faces is the partner who generates exceptional revenue but refuses to mentor associates, share client credit or participate in recruitment. Rewarding this partner solely on the size of their book risks alienating the rest of the partnership and damaging the talent pipeline. Penalising them too heavily for poor institutional behaviour risks losing them to a competitor who will pay without asking for anything in return. Neither extreme serves the firm. The right answer, and it requires real courage from committee members, is to have that conversation directly: here is what you contribute financially, here is what you are not contributing institutionally, and here is why both matter.

 

A look at other professional services

The accounting and management consulting sectors handle non-financial contribution in ways that are instructive for law firms, not because the models translate directly but because they reveal how the same underlying problem can be approached differently.

 

In the Big Four accounting firms, performance measurement integrates financial targets with risk management and quality scores. Partners are measured on the annuity value of their client base and their ability to cross-sell services to existing audit clients. Crucially, if a client's relationship is entirely dependent on a single partner rather than the firm's broader platform, that partner may actually receive a lower performance rating. The firm's long-term stability matters more than any individual's short-term numbers. The incentive is to institutionalise clients, not to own them.

 

Management consulting firms like McKinsey and BCG measure partners on thought leadership and knowledge contribution alongside revenue. A partner who generates substantial fees but fails to develop their team or contribute to the firm's collective knowledge base is considered underperforming. Compensation is heavily influenced by contribution to intellectual capital: developing frameworks, training others, advancing what the firm knows how to do. This creates a measurable metric for knowledge-sharing, something law firms consistently struggle to value.

 

The common thread across these sectors is a move toward prospective rather than retrospective assessment. The question is not only what did you produce last year but what are you building for the future? Law firms that begin to ask that question seriously, and build compensation criteria that reflect the answer, will be better positioned than those that continue to evaluate partners exclusively through the rearview mirror.

 

 

Non-economic criteria

Over time law firms have started to recognise that in order to have a successful partnership, partners need to do more than produce revenue. Partners need to contribute to the collective. This is a rather fluid concept and could encompass many different dimensions: taking up leadership roles, representing the firm, helping maintain a high academic level, being actively involved in recruitment, acting as Amicus Curiae, or playing a significant role in the culture and development of the partnership.

 

Contribution to the firm is hard to measure, and one might argue it does not go beyond what is expected of a partner anyway. That is precisely the point. These activities should be part of what every equity partner does. The problem is that without measurement, they are optional in practice. Partners who do them get no credit. Partners who do not do them face no consequence. Building them into the compensation discussion does not mean paying a bonus for mentoring a junior colleague. It means making clear that failing to do so has a cost. The distinction between rewarding firm-building and holding partners accountable for it is important: the former creates a market for activities that should be baseline behaviour, which cheapens them. The latter gives the firm a legitimate basis to differentiate between partners who invest in the collective and those who extract from it.

 

 

The 7-Core Dimensions© and compensation

In Chapter 4 we explain the concept of the 7-Core Dimensions© and their importance for identifying what makes a great lawyer. The same framework is a powerful tool for partner evaluation in the context of compensation. The way to apply it is probably not to evaluate or score all seven dimensions annually; that would be too complicated and too subjective. It is more effective to focus on one or two criteria that have the most development potential for each individual partner. These could differ from partner to partner depending on strengths and weaknesses. Each year, one or two of the criteria most relevant to that partner's development would be singled out and specific targets agreed between the partner and the compensation committee. This gives personal development a real place in the compensation conversation rather than treating it as a parallel HR initiative that does not connect to money.

 

 

Transparency

When it comes to monitoring the performance of its partners, what should the level of transparency be? Should every partner have access to the performance data of all partners, or only their own? Simple and straightforward as it seems, this is a topic that regularly leads to internal disputes. One might argue that a partner benefits only from knowing their own metrics. Having insight into other partners' performance does nothing to help manage and steer their own practice. Others argue that since the partners are the owners of the firm, each is entitled to full disclosure on how all individual partners are doing. In practice, however, full transparency tends to have partners focus on those who are trailing behind. Chasing and criticising underperformers can become a popular pastime that darkens the mood in the partnership and consumes considerable management time. In my experience, the best outcome is achieved when each partner has full access to their own data while management controls access to peer data.

 

The case for full transparency rests on fairness and trust: when every partner can see the data, it eliminates the suspicion that festers in secrecy. If a partner sees a colleague earning considerably more, the data provides an immediate and undeniable explanation. It also makes it easier to spot cross-selling opportunities and identify the most efficient internal teams for a specific client matter.

 

The case against is equally real. Widespread access to sensitive performance data can shift the culture toward a high-pressure environment where status is recalibrated every month and partners spend more time comparing themselves to colleagues than focusing on clients. Firms can end up penalising those who are having a difficult year for reasons entirely outside their control, whether personal or market-related, rather than protecting them from unnecessary scrutiny.

 

The level of transparency a firm chooses must be aligned with its compensation system and its culture. A pure lockstep model can afford high transparency because the financial stakes of peer comparison are lower. In a heavily merit-based system, broad data access tends to generate more heat than light. The most workable approach for most firms is to give each partner clear information about where they stand relative to the firm's expectations, without turning the annual review into a tournament table.

Measuring performance is only half of the equation. Chapter 7 examines what firms actually do with that information in the partner evaluation process.

 

[1] IBA Law Firm Management Survey 2023, presented at the IBA Annual Conference, Paris, October 2023. Reported in Law Gazette, 31 October 2023.