Author’s Note: This month’s column addresses a few questions that have been posed throughout the year, but have not yet been answered. Best wishes to all for the holidays.
Q. A topic of conversation among some of our partners is the relative merits of open versus closed compensation systems. What is the norm among most firms that you see? What do you think are the pros and cons of each system? Which one do you think is better?
A. My informal assessment, based on firms with which we have worked and input from partners at others, is that open systems are easily in the majority. This largely can be attributed to historical precedents in those firms, as this is the system in which most lawyers were "raised" and are thus most comfortable.
Proponents of open systems tout the importance of transparency within the partner or shareholder ranks and the salutary effect that has on an organization. The theory essentially is that if one is an owner of a business, he should have access to all key financial data, including compensation. Corporations are often used as an analog and are cited for the supposed open book nature of those entities, especially within the publicly traded sector.
Detractors frequently cite the downside, which may trace its roots to the beginning of man, namely, the effect of one person comparing his standing to that of another. For instance John Partner may feel that he is highly valued by his firm and that his compensation is fair. Nonetheless, John’s tune may hit a discordant note if he peruses the compensation book and sees that Jim, a peer who bills fewer hours and generates lower fees, receives more money than him. It is on this precise point that the system can generate considerable tension and serve as the root of other ills.
Conversely, closed systems remove this "him versus me" issue from the equation. In most cases, only members of the compensation and management committees in such firms know how much each partner is making. This not only can improve morale but can be a highly effective tool in recruiting lateral partners. Closed systems allow firms to bring someone in at a higher level than a slot or band may normally dictate, without instantly triggering enmity from those whose necks reflectively crane to see what others are making.
Naysayers believe that closed systems can contribute to mistrust inside of some organizations. It is posited that if one is kept in the dark about compensation, the firm may be much more likely to keep other issues under wraps, as secrecy could be an ethos that pervades the firm.
It is impossible to proclaim, in the abstract, which is the better system. There simply are too many individual issues in a firm that must be weighed in determining which method best fits that organization’s culture. If a firm were to change, it is much easier to shift from a closed to open system. It would be prohibitively difficult to emigrate from an open to closed system, as it would be too much of a seismic change in a culture of openness.
I would note that firms that have taken a hybrid approach seem to have captured the best of both worlds. Although there are slight variations among these firms, most do not provide compensation data to each partner. Rather, the information is available, but can only be reviewed if someone asks for it. Anecdotal reports are that very few persons actually take that step of requesting the information. Solace is taken from the reality that the data are available, which eliminates any sense of secrecy and greatly reduces any need to see how much another is making.
Q. I am pursuing my J.D. and have an M.B.A. in organizational behavior. I also have many years of both college teaching and corporate management experience. Somehow I get the sense that an M.B.A. is not valued much by many law firms. What is your take?
A. An M.B.A. could be a highly valued tool that makes one a better private practice lawyer. Understanding balance sheets and other financial indicators, having insights as to how companies actually operate and gaining an appreciation of strategic planning are just three of the advantages that such a degree could bestow.
Unfortunately, unless one wants to go into the operational side of law firm management, I think the degree, from a practical standpoint, has very little impact to a firm. This is especially the case at your experience level, as the focus will be on what business you can generate. If the M.B.A. somehow helps you in that regard, it will be treasured. But, that is almost totally dependent upon how you leverage the degree. The M.B.A., by itself, will most often not be a factor in evaluating your candidacy (if you are looking for a job) or standing (if you join a firm).
The M.B.A. is much more likely to be valued in an in-house setting, especially if you were at a general counsel level. It is not, by itself, so heavily weighed that it could be a major factor in the hiring process. Nevertheless, I have personally seen it provide an edge to a candidate in a crowded field. This is especially the case if a company has a CEO and management team that is somewhat skeptical about a lawyer’s ability to truly understand their business. If everything is equal, or even close, the MBA could be the difference maker in such a situation. •
Frank M. D’Amore is the founder of Attorney Career Catalysts, www.attycareers.com, a Pennsylvania-based legal recruiting, consulting and training firm. He is a former partner in an AmLaw 200 firm, general counsel in privately held and publicly traded companies, and vice president of business development. He can be reached at email@example.com .