A different approach to partner Appriasals

In this year’s KATO survey (see Accountancy Ireland June 2005) we revealed that in the majority of independent practices there is little or no attempt to monitor or evaluate partners’ non-chargeable hours. As many partners spend anything up to 50% of their time on practice management and development matters, this lack of accountability means that there is no way that their performance in these vital roles can be measured. The success of the business relies on the effectiveness of the partners, and if they are not playing to their individual strengths, or if they are struggling to cope with tasks they find difficult or unrewarding then, inevitably, the business will suffer.

Virtually every practice has a system in place to monitor staff performance, but all too often the performance of the most important people in the practice – the partners – is seldom, if ever reviewed. Either through a reluctance to confront the issues surrounding under-performing partners, or a fear of causing serious disagreements, partner appraisals get pushed to the bottom of the priority list. However, if properly managed, partner appraisals need not become contentious. Most firms have the ability to make an assessment in this context and need to bite the bullet if they don’t want their business to suffer.

The basic problem is twofold. Even if practices develop a business plan they don’t drill down far enough into specific actions required from each partner to make it effective. The result is imperfect implementation, and a suggestion (usually from those who have contributed least) that structured planning is a waste of time.

Additionally, few firms measure the total contribution from individual partners. The approach is generally to expect some 1,000 hours of chargeable time plus some indeterminate amount of non-chargeable time. Assessing partner activities is therefore a painful process as there is no benchmark for measuring whether or not a partner is doing what the firm requires beyond the chargeable hours worked, fees billed or new work generated.

The Partner Performance Review approach is essentially a simple process that allows the practice to recognise and reward the way in which each partner has performed in his/her role. If followed it will allow all partners and the firm to prosper.

Managing the review system should be part of the role of the managing partner: just one of the reasons why good inter-personal skills are so important in this position.

In the first instance, each partner should create a personal development plan which will set out their proposed contribution to the firm’s business plan. This plan will also include their individual goals and aspirations, their personal commitment the firm and how the see their career progression. One feature which should also be included in each plan is a personal profile which covers the partner’s role within the practice and the work they are doing. This should contain information such as:
• Principal responsibilities within the practice such as marketing, IT, training or other administrative matters
• Professional qualifications and areas of specialist knowledge
• Key performance indicators and statistical information on clients such as:
1. value of client portfolio
2. client gains (estimated fee value) since last review
3. client looses (estimated fee value) since last review
4. Work in progress and debtor levels
• Outside activities (club memberships, networking activities etc.)
• Specialist knowledge of business sectors and services
• Declaration of directorships and trusteeships

The information contained in the personal development plans will enable the managing partner to ensure that all the partners are playing to their strengths and that the practice is fully utilising their individual skills.

Each personal development plan should be cleared by the managing or senior partner and should set out what the individual partners intend to do with their total contributed time. It should describe their principal activities and priorities and how they intend to contribute to the firm’s strategy.

Perhaps the most important part of each personal development plan is for every activity to identify a suitable measure in regard to its outcome. This measure should be specific and represent a quantifiable ‘return on the investment’ for the time spent. For example, if one of the plans is to spend time developing a client, as opposed to recording time to marketing or general business development, the partner would be obliged to identify the number of hours he devoted to this client, and the expected outcome.

What partners do with chargeable time determines current income, but what they do with their non-chargeable time is an investment for the future. There should therefore be a correct balance between chargeable and investment time and the practice should think in terms of a return on investment.

Investment time relates specifically to the development of the business rather than to ‘housekeeping’ tasks and might be used to develop areas such as:

Client relationships
The marketplace for accountancy services is intensely competitive and firms are under constant threat of client poaching by rivals. Time spent developing relationships with existing clients will not only help to maintain loyalty to the firm, but will ensure that no opportunities to cross-sell services are lost – thus providing a better service to the client and generating business for the practice. Existing clients are also am important source ob new business referrals and developing good relationships will go a long way towards encouraging them to recommend the firm’s services.

Prospective clients
Many partners are uncomfortable in a marketing role, but it is essential to bring new clients into the practice. Using the partners’ personal profiles and development plans to identify those who will be most suited to this form of practice promotion will help to increase the volume of new work.

Referrals from intermediaries
Banks, solicitors, insurance brokers, financial advisers and other intermediaries are all potential sources of new business, but are seldom courted in a methodical or organised fashion. Building a formal strategy for developing these contacts into the firm’s marketing or business plan and then into the partners’ development plans will ensure that positive results are achieved.

Personal development
In addition to the requirements of continuing professional education, partners should be encouraged to broaden their areas of expertise and explore new professional territory. As clients demand more from their accountants, partners must be prepared to invest their time in developing the skills to service their needs. This is a particularly important area for younger or potential partners who need to develop both the business and people management skills that they will need when it is their turn to run the practice.

Staff development and training
Partners need to be involved with the training and career development of the firm’s professional staff. Even if the firm has a designated training partner, all the partners should take some responsibility for mentoring and guiding the careers of the people who may well be the partners of the future.

All of these should contribute to the firm’s strategic objectives that are housed in the overall business plan. Unless they are supported by the personal business plan for each partner the overall business plan will not be realised.

Although the whole partnership should be involved in the Partner Performance Review for each partner, the system should involve a substantial amount of self appraisal and goal setting and the process should include not just a mix of reportable statistics, but also the very important subjective aspects which are so essential to the well being of the practice.

This means that partners must feel free to express their views on the current organisation and direction of the firm, particularly in the following areas:
• Strategic
• Financial
• Training
• Computer support
• Personnel
• Practice development/marketing

And if the managing partner is brave enough, there should also be a section in the appraisal form where partners can evaluate his performance and the level of support he has given them as well as giving their views on their fellow partners. It is important that everyone considers these reviews as an opportunity for meaningful dialogue that will provide a platform for improvement – both for the individual partner and for the practice itself.

Although criticism from one’s peers can be hard to take it also helps to concentrate the mind on taking remedial action. And of course these appraisals also give the opportunity to give praise where it is due and the approbation of ones peers will often act as a spur to greater efforts. Again, the success of the review meeting rests on the skills of the managing partner who must ensure that the atmosphere remains positive and is not allowed to degenerate into a whingeing session or bickering between partners.

Self evaluation is a fundamentally fair and equitable process which represents an evolution of the partner’s own personal development plan. Individual achievements will be reflected in the increased profitability of the whole business unit through playing to one another’s strengths and minimising and improving upon individual weaknesses.

Inevitably there will be differences in performance and contribution between partners, and between what a partner agreed to do and what he actually did. It is the mutual nature of the difference that will determine what action is required and the reviewer must agree with the partner the support and actions required as part of agreeing the next year’s plan.

This approach is based upon the key principles of team building, cross-selling, sharing information, and performance management in an integrated unit.

A good appraisal system should maintain fairness and a relative degree of parity; it should allow partners to grow within their own capabilities, to support each other and to achieve their individual career ambitions. It should also highlight individual problems or weaknesses and allow the practice to resolve them before they become a threat to either the partner or the business. Under performance should be looked upon by the partners as ‘our’ problem rather than the individual’s problem.

An effective partner appraisal system can have a dramatic effect on the practice in terms of both efficiency and profitability. It will improve communications, foster better working relationships and help the partners to achieve their career goals whilst supporting them through difficult times.

In practices where partners take a share of the profits in addition to their salary there is often a feeling among some partners that some of their fellows have not been working as hard as they have and that the distribution of profits in equal portions is not fair. In these situations the partner performance review can also act as a yardstick against which profit share can be measured.

During the review process the success and results of the partners’ efforts will be assessed against their plans; which in turn can impact upon their profit allocation. This will be particularly important where there is an imbalance of effort or results between partners. For example, one partner with a young family might have a very different work/life balance from an ambitious, career focussed partner who is prepared to work much longer hours. If this is acknowledged and accepted by all the partners and the review system is working effectively then their profit allocation can be calculated accordingly.

The following can be placed in a box or inserted in an appropriate place in the body of the article.
A typical evaluation structure for a partner appraisal would be as follows:

Managing and enhancing the firm’s reputation
• Professional and technical competence
• Maintaining continuous improvement
• Judgement and risk assessment

Developing market share:

• Improving market share and fee growth
• Image and role in the business community
• Developing the Corporate Finance profile of the firm

Developing client service
• Building client relationships as a trusted advisor
• Client satisfaction

Developing profitability:

• Improving delegation
• Improving recovery rates
• Improving control of WIP balances
• Improving control of debtor balances
• Developing the use of an integrated IT platform and system functionality

Developing people:

• Developing others
• Developing self