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Regardless of whether a firm has five lawyers or 500, partners spend more time talking about each other’s compensation than any other management topic. In fact, it’s a rare partners meeting or retreat that doesn’t dissolve into a discussion of the inadequacies of the compensation system. Partners seem to love nothing more than fretting about how much they pay each other. Given the per-partner profits many firms enjoy, it wouldn’t seem that dividing the spoils should be such a demanding task. Yet in some firms, committees devote hundreds of hours to delving through reams of computer reports in search of the perfect allocation of the firm’s net income. I believe there are 10 inescapable truths about the way law firms approach partner compensation that make the process harder and less successful than it should be. 1. Lawyers often equate compensation with management. It is not surprising that the public views lawyers as people who are motivated only by money; because that is precisely the way lawyers view themselves and their partners. “You get what you pay for” is the mantra of most law firm managers and, as a result, they commonly believe that if you just set the reward high enough, lawyers will do whatever is asked of them. That may work with commission sales people, but few lawyers share the mercenary psychological makeup of encyclopedia salesmen. (If it really is all about money, don’t be surprised when your biggest rainmaker moves to the firm across the street for more money.) 2. Law firms believe in Theory X. Management theorists suggest that there are two schools of thought on motivation: Theory X postulates that everyone is naturally indolent and, if given the chance, will goof off on the job. Theory Y suggests that people actually want to work hard and do a good job, but management must motivate and train them. Law firms are hard-line subscribers to Theory X, so there is a lot of concern about what happens if a partner stops working or loses his or her billing base. As a result, most partner compensation systems are designed to ensure that no one is overpaid. 3. Management is divorced from compensation. Law firms expect their management to accomplish tasks. They also make compensation the primary motivational device for rewarding accomplishment or penalizing failure. Yet in many firms, partner compensation is decided by a committee that is separate from management. Worse, even many of the largest law firms, with hundreds of millions of dollars in revenues, are run by part-time managers whose compensation is based more on the clients they originate or their billable hours than on the success of their management efforts. 4. Partners are constantly afraid of being cheated. Unlike virtually every other business, most law firms have open compensation systems where every partner knows the compensation of every other partner. As a result, partners are more concerned about how they are being paid in relation to their fellow partners than the actual amount of their compensation. Reward can be more political than motivational. 5. Compensation is not tied to performance. In many firms, the compensation list is published in a memo with no mention of why individual partners’ pay is being increased or deceased. Firm management rarely announces expectations of partners, either as a group or individually. Instead, they give out vague signals about the expected behavior or level of performance. 6. Committees avoid responsibility for compensation actions. Typically, partner compensation is set by a compensation committee so that individual members can deflect responsibility for the results. In many firms, the proceedings of the committee are kept secret to ensure that no partner can fully understand or question the message transmitted by compensation actions. 7. Compensation systems ignore motivation. Psychologists tell us that recognition is, for most people, one of the greatest motivational tools that managers have. Most businesses that want their people to be successful look for every opportunity to hand out awards, send the best people on trips, or give dinners in their honor. Lawyers are generally thought of as having high ego needs, yet law firms usually seem to strive to avoid singling anyone out for praise. Shouldn’t bonus checks be handed out at a gala black-tie dinner? 8. Partners are driven to be more interested in the size of their slice than the size of the pie. Increasing a partner’s share of profits is a zero-sum game. For one partner’s share to go up, another’s must go down. Unfortunately, many firms spend more time dividing than creating. It would seem to make more sense to focus partners’ interest on increasing the total profits of the firm. 9. There are not enough dollars to reward some things that really matter. By becoming meritocracies, law firms have embraced a system that devotes a disproportionately large share of profits to the superstars who control business. As a result, there is little left to reward those partners whose contributions (as mentors to associates, or pro bono work, or bar activities) shape the culture of the firm and the profession. 10. Less-profitable firms seem to rely on formulas and other subjective criteria. Since compensation systems are highly confidential aspects of law firm governance, it is difficult to be definitive. However, there is at least anecdotal evidence to suggest a correlation between profitability and compensation systems. Firms with the highest per-partner profits seem to have more objective ways of determining partner compensation, including lock-step or modified lock-step systems, where increases in compensation are heavily determined by seniority. The real truth for law firm management is that three years of law school doesn’t supersede five million years of evolution. Nothing about being a lawyer causes a partner to be motivated by anything different than what motivates doctors, business executives, plumbers, or bus drivers. Therefore, law firms should look outside their profession when designing compensation and recognition systems. It could have amazing results. H Edward Wesemann is a consultant with Edge International, working exclusively with law firm strategic issues, with a special emphasis on culture and its use in strategic planning. He is a frequent retreat speaker and facilitator. He can be reached at [email protected].

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