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4 Steps to Ratings Nirvana

Ray Oldfield | 24 October 2016

 

In recent times, a number of firms have moved away from rating skills and overall performance. Meanwhile, other firms are just beginning to look at how a ratings system could start to help them with measuring and rewarding the right behaviours within the business.

Why are ratings so challenging?

Given that firms usually tend towards the reassurance of 'rubbing with the pack' in most things, it is interesting to see that this is one of the only areas that seems to split the industry almost in two.

Ratings systems have always been imperfect. Take lawyer skill progression as an example. While lawyers' development may well be stratified into 'bands' to mark progress, more often than not the band applied is based on a reviewer's graded scale of 'feeling' as opposed to a demonstrable, numeric measurement. Overall performance too, appraised once a year, was and continues to be a frustrating affair akin to trying to summarise War and Peace in Haiku form.

In an effort to mitigate this, many firms moved to a 'balanced scorecard' approach. That is, their people, irrespective of role and ability, were asked to advance in the same areas of competence. Everyone in a similar role is held accountable to the same criteria, often regardless of business case or benefit to the firm. A technically-minded Partner could therefore be expected to excel in leadership or business development even if it makes no marked improvement to the firm and, conversely, takes them away from areas where they could make a more valuable contribution. Furthermore, this approach can detract from the importance of individual specific skills and may promote a 'Jack-of-all-trades' mentality that can significantly limit the business as a whole.

Some firms, unwilling or unable to implement the above approach, have instead opted to move the assessment process behind closed doors. On the surface, this may make short-term sense; why push forward a system of ratings which is potentially inaccurate at best or, at worst, intrinsically flawed. So, what is their solution? Seemingly, no ratings. Everyone works throughout the year and, at the end, is magically rewarded or penalised based upon largely unknown criteria. To avoid the frailties of a potentially deficient process, the entire concept has been done away with. Hurrah. But not quite; improvement is nigh on impossible without anchor or baseline, and progression becomes tied to the foibles of uncertainty.

Whilst there is currently no perfect system of performance management and remuneration, any process must be clearly communicated (perceived flaws and all) and faithfully followed, so that people trust in how they're assessed and the basis on which decisions are made. Any system of rating will include an element of subjectivity but, when coupled with transparency and clarity around objective criteria, this can be a good thing; certainly better than pretending ratings don't exist when, in reality, a scorecard is applied behind closed doors.

In that vein, we think that there are four areas in particular to consider when deciding on how to successfully implement ratings at your firm:

1. Think about what you are rating

If we accept that you should be measuring and rating something, the obvious question then becomes "What should you rate?".

Financial Performance

Revenue, and by extension billable hours, are easily quantifiable and captured by firm's accounting systems. It goes directly to the bottom line and financial health of the business. Other financial metrics, such as Realisation and Margin, are arguably less clear to the individual but are still fairly easily considered by the firm. All important things of course.

That said, firms should think about the weight they place on pure financial generation. Does it really drive the right behaviour? Over-emphasising cash collected and hours billed may well disincentivise people to invest time in relationship building, market analysis, team management and many other activities crucial to the long-term success of the firm.

So yes, of course, consider the financials, but not to the detriment of all the other activities necessary to target, win, retain and grow the firm's client and talent base.

Non-Financial Performance

If we accept that considering solely financials gives an incomplete picture, what can be done? Well, the areas that you rate could be broadened, as they have at many firms in recent years. Gone is a laser-like focus on financial performance to the exclusion of all else, and in has come a desire to look at elements that show a deeper contribution to the firm.

Firms have started to try to look at a number of other criteria that can generally be grouped under the following headings:

  • Collaboration - How much are you a team player? Do you engage with others in the business for the benefit of your clients?
  • Talent & Knowledge - Do you proactively help to develop others within the firm? Are you adding to the experience and knowledge base within the business?
  • Profile - Are you working to improve the profile of the firm in the market place? Do you go the extra mile to build your own market reputation?
  • Culture - Do you embody the firm's core values? Are you embracing diversity and being inclusive in the workplace?

On the face of it, an excellent step forwards in putting together a more holistic view of an individual's contribution to the firm. However, a lot of these important areas are more difficult to measure. More difficult than financials for sure, but not impossible, and we would say essential - get this mix right and you will be able to use ratings to support and encourage the behaviours you want to see flourish within your firm.

2. Adopt a flexible system that embraces diversity

A key foundation for any successful rating system is the acceptance that there are different types or personas within the firm (even in the same role), and that these should be embraced and, potentially, equally rewarded.

'Minder, Finder and Grinder' terminology has perhaps fallen a little out of favour in recent years. However, arguably this was because firms really only ever rewarded the 'F', for Finder. Finders were the Rainmakers of old, the business originators who, habitually, were the most lauded and rewarded. In their shadow, Grinders got the key technical legal work done, and Minders managed both the client relationships and internal talent.

All three roles (and, arguably, other subsets) are intrinsic to gaining, maintaining and retaining clients and developing talent. To remove or alienate one from chain is to endanger the entire business. A system that embraces different proto-personas and, crucially, allows for an equal opportunity for all to earn maximum remuneration irrespective of type, is one that will most benefit the firm as a whole. But more than that, this will allow your talent to develop the skills that they actually enjoy, are naturally good at and will allow them to thrive within the business world.

The importance here, is to recognise the different personalities and processes within the whole and to reward them on their respective skills. Weight your criteria based on your business goals and the behaviours you want to encourage, i.e. if your firm is more focused on expansion, reward Finders higher than other types or, equally, if you've had a high rate of client turnover, increase Minder targets and remuneration. Allow for flexibility; some individuals will have natural skill sets that cross these personas, and your ratings and rewards should encourage such 'hybrids' to excel in both roles.

Implemented within a supportive culture that accepts and encourages different skill sets, such a ratings system will allow you to compare like with like, incentivise people to play to their strengths and to focus on the firm's strategic requirements as they may vary over time.

3. Be as consistent and transparent as possible

Before we move to the how, let's cover the why. The issue with ratings is one of confidence. How can we rate people consistently enough across a diverse business to ensure that there is internal buy-in to the overall fairness of the process? If you can get consistency, across the right ratings as described above, then your business will have trust in the integrity of your performance and remuneration decisions.

Currently, the typical process is one of informal feedback on an ad hoc basis, supported by a mandatory annual or biannual review. We've explored how useful such reviews are here, here and here but, to summarise, annual reviews attempt to cover a year's worth of work, tend to promote lack of clarity on what has been achieved, and can lead to the festering of issues for long periods of time. Moreover, they are also harbingers of inconsistency; infrequent meetings, led by different people, sometimes with no standard approach and almost always with limited objective criteria that is universal across the firm. The answer is to have more frequent conversations and continuous feedback, both focussing on progress against clear objectives and rating against well-established criteria.

Transparency is also crucial to regulating how effective and useful the rating and compensation process is within a firm. People need to know what is expected of them in order to progress in their role, in order to identify areas of improvement or in which direction they need to drive their energies. But beyond the individual, transparency is the only way that your talent can have confidence in the system to which they are held accountable.

So, more frequent conversations and a culture of transparency are key, but will equally achieve little if you don't provide your team-leaders with the skills and understanding to deliver a consistent process. Clear context and strong leadership, as always, will help drive the move to a better approach, but learning and development support is also needed to help imbed the behaviours and abilities necessary to make that approach stick.

4. Be wary of ratings and inherent bias

The profession has come a long way in terms of expanding its makeup and becoming more inclusive, however diversity is still greatly needed and, moreover, has been proven to increase overall team performance. This isn't a case of simply trying to use metrics and ratings that are indifferent to gender, race, or sexuality; metrics by their very nature tend to be blind to such things. This goes much deeper, to an understanding of any historic bias that may well have affected the underlying behaviours upon which this metrics are then delivered.

As a recent example, one HR Director at a leading law firm used data to show that female associates were consistently 'underrating' themselves in the self-assessment elements of their performance reviews. This was leading to those associates being consistently graded lower than their male counterparts, because any moderation by the Partners was then later applied uniformly without reference to gender. So, whilst the firm felt it was acting fairly across gender, the Partners were inadvertently reinforcing a deeper-routed bias.

Again, training and support are key to ensure that there is a level playing field from which a consistent rating system can help you to achieve the balance desired.

Conclusion

Whichever performance rating system a firm uses, it must primarily be transparent and consistent to engender confidence that it is ultimately fair. Taking any element of this process into the backroom does nothing to fix the inherent issues and, in the worst cases, will create distrust, disengagement and ultimately departures among your lawyers and staff.

While it may well potentially be a quick win to tell the business 'we aren't going to use ratings' because getting them right is challenging, we would argue that the long-term solution is putting time and effort into getting the right rating system in place. Yes, it's difficult, but the alternative will create deeper issues that will ultimately take much more time to correct.

 

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About ObjectiveManager

At ObjectiveManager, we have developed goal-setting software to help professional services firms and their people define strategy and improve performance through continuous feedback to power growth.

By simplifying the way firms conduct the entirety of their strategic planning from Sector/Client progammes to Partner Remuneration, we help them improve collaboration and optimise conditions for growth. Our innovative software turns individual gains into big business impact by making individual and firm-wide objectives visible, constant and actionable.