With the recovery creeping along at a snail's pace, many law firms are grappling with uneven peformance across practice areas. In general conversations, partners are reporting that much of real estate remains down, while litigation has been flat and M&A activity is modestly reviving. I checked in with Kristin Stark, a San Francisco-based consultant with Hildebrandt Baker Robbins, about what that means in her day-to-day dealings with Am Law 100 and 200 clients. It's not surprising that Stark says partner pay has been a hot topic of discussion -- and a source of tension -- in some firms. Here's a summary of our talk on the topic and what firms should be doing to keep rainmakers from walking out the door.
Q: Are partners throwing staplers at each other over this?
A: [Laughs] Maybe in some firms. In all seriousness, firms are recognizing that if they don't address the disparities in practice performance and the flat levels of demand in the market, the tensions are only going to increase and may create instability in some firms.
Q: By instability, do you mean we can expect more lateral movement?
A: We might see increased lateral movement and potential splits or break-offs of some high demand practice groups. We're going to see the better groups walk out the door.
Q: Are we going to see partners' pay going down?
A: We are already seeing a growing spread in high-to-low partner compensation. Before the recession, the average spread in high-to-low was typically five to one in many firms. Very often today we're seeing that spread at 10-to-1, even 12-to-1. You can imagine that creates a lot of problems. It drives further tension between partners over compensation and creates an environment of the "haves" and "have-nots" in law firms.
Q: What can firms do right now?
A: Take a hard look at their partner compensation systems. They also need to try to re-evaluate the role of a partner. For a lot of firms, defining an equity partner's role tends to be a stagnant evaluation. They define partner expectations at a single point in time and don't look at it again for years. In this market firms have to constantly re-evaluate the expectations of a partner, communicate with partners about what is required of them, and incorporate partner goals and expectations into the compensation process.
Q: Should it be happening every year?
A: Firms needs to be talking to partners about their performance every year -- and throughout the year. Ongoing coaching of partners on their performance and helping them make improvements has become a powerful tool for driving partner and firm performance in successful law firms. High-performing partners want to work in an environment where co-owners are engaged and actively contributing to firm growth. Without this, a firm's top performers are at risk.
First reported in Legal Pad, a Recorder blog.