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The Wise and the Innocent Ways Partners View their Firms’ Compensation Systems

Hugh A. Simons

Half of Big Law’s most-productive equity partners want to see change in their firms’ comp systems. This is an arresting observation. I’ve seen the comparable statistic for consultants, investment bankers and physicians: groupings of these professionals typically report less than half this appetite for change. Law partners’ discomfort is especially striking because one would expect today’s frothy comp levels to dampen such feelings markedly.

The primary change equity partners seek is to have the mechanism by which individual compensation allocations are determined be made more explicit: what factors are considered, how are they assessed, and what are their weightings? They believe there’s extensive favoritism and cronyism.

Managing partners have a choice. They can view these sentiments as simply a manifestation of lawyerly proclivity to find fault. This is questionable, not least because consultants are similarly profligate with their ability to identify potential for improvement. Alternatively, firm leaders can accord them some legitimacy—after all, when it comes to managing people, feelings are facts—and try to tease apart its different layers, and develop an action plan appropriate to their firm’s circumstance.

If managing partners take this second approach and are honest with themselves then many will acknowledge that their equity partners have a point. Comp systems are living organisms that have evolved incrementally to accommodate idiosyncratic situations, exigencies, and personalities. As a result, many comp systems fall short of being principle-driven, incisively-equitable, and fine-tuned to further a firm’s strategy. The reason managing partners don’t provide partners clarity on how their systems work is simple: they can’t—their workings aren’t clear.

In order for managing partners to make their systems more objective they have to acknowledge to themselves one other reality: subjective systems suit managing partners. It affords them an element of control—the power of the purse can beget compliance. In the herding-cats environment of a law firm partnership, such influence is not to be relinquished lightly.

However, a balance can be struck. Comp systems can be designed to provide greater clarity and yet retain an element of managerial discretion. The key is to delimit explicitly the portion of the comp allocation that is discretion based, and to define the criteria and process by which such discretionary sums are, and are not, allocated. In my experience, the majority of partners are accepting of management retaining discretion when management is open about it; it’s the furtive that creates concern. Further, managing partners should not discount the power of even small compensation amounts—as many know all too well, partners can take umbrage over even slight differences with other partners.

The following lays out the data on equity partners’ desire for change, discusses the dynamics around these desires for different equity partner segments, and outlines a compensation framework that combines objectivity and discretion.

DESIRE FOR CHANGE

Partners’ perspectives on their firms’ comp systems were explored in the Major, Lindsey & Africa 2018 Partner Compensation Survey. In total, the survey received responses from 1,261 partners; the present analysis focuses on the 663 full-time equity partners within this group who provided answers to the full set of relevant questions.

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