Human Resource Management in the Service Sector

1. Human Resource Management in the Service Sector Lectures 8 and 9: Law Firms

2. Objectives • Understand the basic characteristics of the sector • Identify the traditional model of organising and management of HR • Consider some of the key changes in the sector and the responses of law firms • Identify the challenges this presents for HRM and for knowledge management • Focus on the key issue of remuneration and reward, especially variable reward • Analyse a practical case drawing on our knowledge of theory

3. Overview • Introduction to the sector • Traditional model of organisation and of HRM • Changes in organisation and HRM • Implications for managing knowledge and managing people • Key issues: remuneration and reward – brief recap • Introduction to the case and organisation of the task (Kinnie et al, 2006; Hunter et al, 2002; Morris and Pinnington, 1998; Maister, 2003, Scherer, 1995;;)

4. Introduction to the sector • Barristers and solicitors – our focus on solicitors (‘law firms’) • Selling an intangible service: advise and represent clients on criminal and civil cases • Modern law firm traced back to early 1900s – mostly family practices before this • Very large firms – the ‘magic circle’ (London based, major corporations) • Medium sized firms – mix of work mostly for corporates • Small – mostly private and routinised legal work • Internal organisation into specialities – ‘practice groups’

5. Law Firms: traditional business model • Wide range of legal matters dealt with for major clients • Partners maintained close personal links with clients to keep and gain new business – reputation is important • Dedicated human capital to client and to specialist areas – built organisational capability

6. Traditional organisational structure Partners – ‘Finders’ Associates ‘Minders’ Assistants ‘Grinders’

7. Traditional organisational structure • Partners – sell services or create demand (‘Finders’ of new business) and claim part of the profits of the firm – equity – often linked to seniority (‘lockstep’) • Associates – (‘Minders’) who manage the work – salaried and looking for promotion • Assistants - (‘Grinders’) told what to do and how to do it – no voice, no role - do the hard legal work and research – also salaried

8. Traditional HR model • External Resourcing • elite recruitment – hired prior to qualification • Training and Development • Apprenticeship model – trained supervised and rewarded by the partner • Internal Resourcing - promotion • ‘up or out’ promotion up to partner (6 years) or leave the firm for a competitor or client – competitive – ‘tournament model’ • Reward • ‘making partner’ – but problem of how to create the right set of incentives to align aims of associates with those of the partners and the firm (Morris and Pinnington, 1998)

9. Traditional HR practices ‘Up or Out’ High reward for equity partners Partner in 6 years – or leave the firm Apprenticeship model Elite recruitment

10. Market changes • Growth of in-house lawyers – clients become more demanding • More complex law - need for greater specialism • Firms become larger and more complex • Growth of transactional work which does not need lawyers and is more routinised (eg personal injury, property)

11. How have law firms responded? • Strategic planning and marketing – becoming more like businesses • Structural changes – board structure, managing partner, directors of functions • Growth of a sectoral approach combined with the traditional practice group approach – eg become specialists in health and local authorities • Flatter structures and more devolved organisation (Hunter et al, 2002)

12. Changes in the HR model • Tiers of partners who were rewarded differently – salaried partners • External staff brought into senior positions – lateral hires - (‘rainmakers’) • Greater specialisation earlier • Non-partnership tracks established • Senior associates – need to retain or recruit in highly valued but low profit areas • External staff brought in as senior associates • Semi-professional staff brought in (‘paralegals’) to do the routine work

13. Performance controls – typically chargeable time, fees against targets and time charged against targets • More benign promotion systems not solely focused around partnership • Promotion criteria • Getting new business, fee earning ability, technical skill, getting on with clients, getting on with peers, management ability • Self regulation of performance • Monitoring by peers and clients

14. Implications for managing knowledge and managing people • Recognition that knowledge is a competitive asset – need to manage knowledge strategically • Larger firms have sought to manage their knowledge – often using IT systems for explicit knowledge • Importance of tacit knowledge and client and network capital – how to convert this tacit knowledge into explicit know that could be codified (Kinnie et al, 2006; Hunter et al, 2002)

15. Human capital Social capital Network Capital Client Capital Structural capital • Organizational • Capital The HR Wheel Strategy Resourcing Structure Job and Work Design Involvement Intellectual Capital Training and Development Performance Management Pay and Reward Delivery

16. Challenges presented to HRM • Resourcing: technical skills and fit with wider culture of knowledge sharing • Training and development: improve specialist knowledge and create greater versatility • PMS: improve performance and stimulate knowledge sharing and discretionary activities • Reward: individual performance and encourage commitment to the interests of the firm • Involvement: retain valuable members of staff and create feelings of loyalty and commitment to the firm • Our focus is on remuneration and reward

17. Remuneration and Reward in ‘High Trust’ • Bases for rewarding performance: job, person or performance • Fixed and variable pay systems • Performance pay: some key questions • Introduction to the case study

18. Strategies for Reward: job, person or performance? JOB job rate job rate and performance pay skill level in job PERFORMANCE commission piece-rate skill-based and gainsharing PERSON Competence/skill-based

19. Individuals Group Unmeasured performance Individual contract only Rate for the job Measured Performance Performance targets (sanctioned) Job and finish (variable time) Measured Day Work (sanctioned) Job and finish (variable time) Fixed Pay Systems

20. Individual Group Output Piecework (general) Commission (sales) Performance pay (targets) Team bonus (targets) Gain sharing (geared) Profit sharing (geared) Input Skill/Knowledge (Learning) Competences (behaviour - structured) Merit Pay (behaviour - unstructured) Share ownership ESOPs (stakeholders) Variable pay systems

21. Performance Pay: some key questions • ‘the explicit link of financial reward to organisation, group or individual performance’ • What performance? – what are the key criteria, what is being measured • Whose performance? – individual, team, firm • How is it measured? – how is the data collected, from whom? • What is the mechanism? – link to performance management system? • How is it paid? – financial and non-financial

22. ‘High Trust’ • Local law firm - medium sized and growing fast • Strong emphasis on culture and values inclusive and mutual respect – building social capital – sharing work and knowledge • Issue of how to reward their staff who contribute to the success of the firm while reinforcing their values