In August 1999, after some years of discussion, Simmons & Simmons implemented a new partner remuneration system that moved away from a pure lockstep to a more flexible, contribution-based system. A number of firms are currently considering whether they should alter their partner remuneration system. I was managing partner at the time we changed our system, and our experiences have taught us several important lessons that are worth bearing in mind.

Under our system, 80% of the profits are distributed on a modified lockstep to partners who can be moved up, down or be held at the same place on the ladder. This part of the system recognises contribution over time. The remaining 20% of the profits are distributed by way of contribution points that recognise partner performance over the previous year. Since the system was introduced we have become used to operating it and the partners have become more attuned to the process and outcomes.

Proper partner appraisals, which are fundamental to our system, are hard to achieve. This is because those in management positions find it infinitely more difficult to assess partners than to assess associates. This can frequently lead to performance and behavioural issues being brushed under the carpet. Over time, we have become better at dealing with this issue.

It is also important to apply broad performance criteria when assessing partners that cover a wide range of behaviour and activity with financial criteria serving as only one part of the award process. As financial information is 'hard', there is always a risk that it weighs too heavily in an assessment.

To reassure partners about the independence of the process, the outcome of appraisals should be considered by a remuneration committee made up of partners who are directly elected by the partnership. This is how the committee is chosen at this firm. However, we did adapt our system after it was introduced to allow the managing partner to sit on the committee on an ex officio basis. This ensures that management's input is available during deliberations.

A key to the success of any contribution based remuneration system is the successful management of expectations. The danger is that partners enter the process with high expectations about their personal position that may not be met. The capacity to disap-point can be a major problem. But expectations can be managed if difficult issues are raised early on.

Flexibility is vital. The system should be able to compensate high achievers on a competitive basis while at the same time recognising that partners can have a bad year and be rewarded accordingly.

International differences must also be taken into account. Our system recognises differences in the profitability of the jurisdictions in which we operate. Given that 50% of our partnership is based outside London, this is an important way of maintaining a unified partnership.

Finally, it is important to be realistic about the demands performance-based systems place on key personnel. They require a good deal of time to manage and administer. This is a cost. However, they also help identify partner strengths and weaknesses and address issues that historically would have been left unresolved to the detriment of the firm.

When I am asked if I believe a contribution-based system is a good thing, my answer is 'yes'. But getting it up and running – and running it well – is a major management challenge. As time has progressed, we have been flexing our system increasingly to achieve fairer profit allocation and encourage partners to play a full part in building the firm's business.

David Dickinson is senior partner at Simmons & Simmons.