In these times of increasing partner mobility and high wage inflation for solicitors, it is essential that firms maintain a partnership remuneration structure that acts as a financial incentive and business motivator. However, it is equally important that the structure supports the firm’s particular culture and does not cause division or acrimony.
There is no single model for partnership remuneration that suits all firms; each practice is unique, requiring its unique reward system. However, most remuneration structures are based on a combination of ‘lockstep’ and merit-based systems.
This article explains the relative pros and cons and highlights the need for a process which is clearly communicated, trusted and respected by all partners within a firm.
Lockstep
Historically, many firms have used a lockstep remuneration structure for partners where profits are divided according to an agreed point system.
Some firms operate a lockstep arrangement based on an automatic escalator, whereby a partner reaches the top after a fixed period. Such escalating systems do not necessarily encourage partners to do their best, as they move up the scale automatically. Parity with fellow partners is achieved within a set time scale, normally five to 10 years.
One of the major benefits of a lockstep system is that it encourages a collegiate atmosphere so that each partner feels he plays a part in improving the profitability of the firm as a whole and not just his own section of business.
However, a lockstep reward structure can produce problems for a firm as issues such as individuals’ high or poor performance need to be reflected in the remuneration system. Accordingly, these systems usually have a method of formal appraisal so that each partner is made aware of his peers’ assessment of his performance in relation to criteria laid out by the firm.
Lockstep arrangements are sometimes modified by incorporating a ‘ladder’ system, so that partners only progress to the next step with additional effort. Such systems must be strictly applied to ensure they are not perceived as a standard escalating system. In particular, instances of under-performance should not be rewarded
and might even cause points to be deducted.
Consideration must also be given to the number of steps in the lockstep before a partner reaches the plateau at which senior partners are rewarded equally.
