Over the last three years, many firms, particularly in the south east, have seen their profits per partner drop dramatically.

The greatest problem facing most practices is how to boost fee income when saddled with a significant fixed cost base.

Too many practices are currently suffering from static or, quite commonly, declining levels of fee income and until this is cured then total profits for distribution to the partners will decline.

In the past, the concept of lock step or even equal profit sharing among equity partners gave the practice a 'clubby' partnership atmosphere.

However, it may not provide the incentive for an equity partner, ie profit share and drawings, that a more performance and results-based system would give him or her.The area that is often overlooked is the level of contribution made by partners to the development of the firm.

It is only recently that more far-sighted firms have introduced appraisal systems for partners, to set them goals, monitor performance and shape their careers.

The concept of a solicitor in a partnership being reviewed by his or her peers is so alien to some die-hards that they will fight it to the bitter end.

But the view that a partner has a right to his or her share of the profits, regardless of performance or contribution, is no longer relevant in the 1990s.A partner's role is now multi-faceted.

Not only must he or she be capable of delivering high quality professional (and profitable) work to clients but he or she must also be able to develop new clients, develop additional work from existing clients (with an emphasis on cross selling the firm's other services), manage and supervise staff, manage his or her own portfolio (especially billings and cash collections) and maintain his or her level of professional and technical expertise.

It is essential that all aspects of a partner's job are clearly defined, with objectives set in each area, and some form of measurement of performance, albeit in certain instances qualitative, taken on a regular basis against those objectives.But how do you reward a partner for good performance and, conversely, how do you penalise for underperformance? The great strength of partnerships is the variety of people found within them, in terms of personality, ability (technical, sales or management), leadership skills etc.

The key to a good profit-sharing system is, first, to determine, for the whole firm, the quantum of partner reward that is of a fixed 'salary' nature.

This can equate to the previously discussed lock step or fixed share system.

It should be high enough to recognise a reasonable base subsistence level for the partners but low enough so that complacency is not engendered.The next step is to decide how this should be allocated.

Seniority in the partnership, age or even a standard level for all are some of the options.

The key, though, is to ensure that it is not performance related.Having carried out this exercise and dealt with the first tranche of profits, a substantial amount of undistributed profit should remain, ie the second tranche.

The difficult part of the exercise lies in establishing an equitable method for dividing this among the partners which will have the effect of motivating them.It is at this point that an effective partner appraisal system will allow decisions to be made about the allocation of the second tranche of profits.

In an i deal world, each partner, including the most senior, should be appraised by their peers at least once a year.

The appraisal will look back at the past year and assess how the partner has performed against goals set at the previous appraisal.

It will examine the successes and record them and it will identify those things which have not been a success and analyse the reasons for these.

It will go on to define a means, either through perhaps training, reorganisation or better information, to ensure that the same problems do not recur in the future.

Finally, and importantly, goals will be set for the forthcoming year.The goals set at the appraisal should seek to maximise the strengths of the individual partner for the benefit of the practice rather than being set at the same level for everyone.

We have seen practices that expect to derive a similar level of results from all partners regardless of their key skills and regardless of the area of the practice in which they work.

Each of the elements discussed below should have a weighting attributed for each partner in terms of performance goals, ie where a partner is expected to achieve a high performance in the forthcoming year in an area which is their key focus, then a high weighting should be attached.

Where it is an incidental part of their job, then a lower weighting is applied.The separate main elements of an appraisal are listed below.

These are some of the key areas of a partner's job which should therefore be examined in the context of each partner's performance, in a quantifiable way wherever possible.-- Marketing and service/product development.

Unfortunately, most professionals baulk at the concept of product.

Nevertheless, lawyers' services need to be packaged in a saleable and understandable way for clients and also in a way that, if possible, differentiates your firm from the rest of the pack.

Also, marketing is not selling and a clear understanding of the basic concepts of marketing is essential for every partner.

-- Selling.

This is often euphemistically known as client development whereas in other businesses it is called selling.

Some partners are very good at it, a number are quite reasonable, a large number are poor.

After all, why should they be good at it when they were trained as lawyers, not salesmen? But if no one is selling, then a firm is relying on fee income walking in through the front door of an expensive office block.

Selling comes in two guises: selling to new clients and selling to existing clients.

The second of these two is the easier one and, normally, the one most partners forget about.

Developing long term client relationships is the easiest way to get fee levels rising once again.-- Client matter management.

What level of fee income is the partner responsible for? How well have the matters been executed? Are the clients happy and has the work been completed profitably? This is the day- to-day management of fee load.

A good management information system together with some ongoing form of client satisfaction survey will undoubtedly provide some revealing insights into the performance of certain partners.-- Administration.

For example, billings and cash collections, the area in which most practices know they have to do better but do not quite know how to.

Methods for improvements in this area need to be developed within the firm.

Tie this area into appraisals and watch the working capital locked up in work in progress and debtors reduce.-- Team development.

A key method of achieving higher levels of profitability is through 'leveraging', ie developing and using staff to carry out matters either more profitably, at a lower cost or both.

Increasing the ratio of partners to staff, as long as quality of work and service is maintained, could be a key role for a partner, particularly in an emerging and developing area of the practice.-- Technical development.

A major danger for a partner moving up through the hierarchy of a firm is his or her becoming distanced from the legal and technical issues which are vital in terms of reviewing the work done by subordinates and, in turn, providing high level advice to their clients.

It is essential that, regardless of seniority, all partners have an obligation to maintain and improve their technical competences.There will undoubtedly be other headings under which effective partner appraisal should take place, such as contribution to the overall management of the practice.

A process based around the above list will give enough of an insight into individual partner performance on which to judge the second tranche of profit sharing.It should then rest on a small group of partners -- let us call them the profit sharing committee, who will ideally be elected by the rest of the partnership -- to decide on how the second tranche should be divided.

This exercise will be based on the conclusions drawn from the appraisal process and the 'degree of difficulty' that certain partners will have had in trying to achieve their goals.

For example, a partner who is setting up a new department or service is unlikely to be generating the same level of fees as another who has been running a mature department for some period.

In such a case, the pioneering partner should not be unduly penalised as his or her time and efforts are being expended in seeking to generate future revenue for the practice.Inevitably, there will always be some degree of subjectivity in a performance/appraisal based system.

However, we strongly believe that the potential benefits of encouraging practice growth and profitability far outweigh the negatives.

There will always be the odd partners who believe they have been 'hard done by' in the profit-sharing process.

But experience has demonstrated that the likelihood is that they are the same ones who would be dissatisfied under any other scheme.There is an overhead attached to this process.

It is the time and effort that each partner would have to put into their appraisals, the peer review partners' time in carrying out the appraisals and the time of the profit-sharing committee in its deliberations.

These are a small penalty to pay for encouraging a culture within the practice which rewards effort, volume, profitability and overall improvement.1994