Increase business success by reviewing your profit sharing model

Category: Professions - Posted On: Mar 7 2018

In the past many professional firms have favoured the traditional method of splitting profits equally between partners regardless of performance. However, this model can become a point of contention when partners do not feel this reflects individual effort and achievement.

Professional firms often operate in markets where the performance of their people is key to generating and retaining business. To gain advantage over rivals, firms need to attract and retain their ‘top talent’ by rewarding them appropriately. If fee earners feel they are contributing more than others within the firm but receive the same profit share, they may feel that their efforts are not valued and become demotivated.

In order to avoid this, many professional firms are favouring the trend towards a performance related model of profit allocation. This encourages all partners to maintain and enhance their contribution and be remunerated on their merit. A well thought out performance rewards model is an attractive option, as benefits can include:

  • Encouraging the business to set a strategic target for the firm and individuals to increase the number of profitable clients or increase turnover by adding value to existing clients.
  • Enhancing profitability as high quality staff attracts high quality clients.
  • Developing a culture of high performance across all levels of staff.

There are many ways in which performance can be measured and rewarded. Implementation will be specific to the firm and the industry in which it operates. For example, legal firms may offer the partners a basic salary with a bonus based on their percentage of fee earnings.

When developing a performance related model, remember that:

  • The method of making individual awards should be clear, logical and fair.
  • Financial data and other business reporting should be maintained accurately if it is to be used to calculate remuneration and profit share. Financial projections and budgets should be prepared and monitored regularly.
  • Performance indicators can be based on both chargeable and non-chargeable assignments.
  • Rewards may not always be financial, for example providing additional holiday entitlement may incentivise individuals.

A performance related bonus can be used to boost productivity as it can align everyone to the same goal, and many firms find that business profitability and success increases. If your firm is considering a change in its profit sharing model, it is important that any legal documentation is updated to reflect the changes.

For further information or advice, please contact one of our EQ Professions specialists via or call your local office contact.