What Is the Best Partner Compensation System?

Good compensation systems are a management tool that promotes firm stability and puts the emphasis on merit and performance.

What is the perfect partner compensation system?

There isn't one. While every firm struggles to find a perfect and permanent solution, compensation systems should evolve over time as the needs and culture of the firm change. Even healthy systems should undergo minor, evolutionary changes.

Compensation is the one factor that affects success, reflects a firm's culture and impacts everything a firm does. As a consequence, truly effective partner compensation systems are used as a management tool - to motivate, encourage or penalize individuals for their performance and behavior.

See the following articles for more information on partner compensation in law firms:

• Pay to Win—How to Make Your Law Firm's Compensation System an Asset
• The Emphasis on New Clients and Partner Compensation
• Taking a Fresh Look at Setting Compensation for Managing Partners
• Compensation Issues

Emphasis on Merit

People are affected by positive reinforcement, and lawyers are no different. The best compensation systems today put an emphasis on merit and performance, not on seniority and ownership. The test of what a good compensation system should do includes:

• Rewards an individual's total contribution
• Promotes a team approach
• Promotes profitability
• Serves the interests of the client
• Offers incentives to all partners
• Provides a sense of predictability and stability
• Avoids wide annual swings to accommodate for unusual fluctuations and circumstances
• Avoids small, meaningless differences in levels and the levels are well-defined
• Creates a sense of fairness

Five Approaches to Compensation

Over time, five partner approaches to partner compensation have evolved:

1. parity,
2. lockstep,
3. formula,
4. subjective; and,
5. a combination of some of the above.

Because the first two do not take into account merit and performance, they rarely work today. Purely objective systems, while attempting to be "totally fair" because compensation is calculated using a mathematical formula, rarely work because they tend to become increasingly subjective over time. Formulas and criteria can be, and are, manipulated. Objective compensation systems are found most frequently in firms that are profit-center focused, where lawyers operate as sole practitioners sharing space.

The most widely used and successful systems today are based on subjective systems that incorporate some objective data and criteria. Effective subjective systems identify and articulate specific criteria that will be evaluated in the context of performance. For example, objective or measurable data might include originations (preferably of new matters, not new clients), personal hours billed and collected, billable hours generated for others, realization rates. Important non-financial factors considered include hours spent on important firm activities such as recruiting.

This blend of non-quantifiable and objective factors tends to be most successful because it allows the firm's leaders to consider important human factors related to a firm's overall success. It encourages teamwork and sharing of work, since growing the overall profits will benefit individual partners. Partners may be moved up or down from level to level, from year-to-year based on performance and results.

Advice on Partner Compensation

Here are some final observations and advice about partner compensation:

• Every compensation system will only be as effective as the manner in which the criteria are determined and articulated, the extent to which partners perceive their compensation to be fair, particularly in relationship to their peers, and the manner in which decisions are communicated.
• If a firm insists on tracking origination (which can increase internal competition and divisiveness), assign a committee to resolve new client conflict issues, give origination credit by matter, not by client, and split up credit when marketing is done by team effort.
• In no circumstances should numbers be used to communicate "a message" about how an individual has performed. Individuals responsible for setting compensation should meet personally with partners about performance and compensation and articulate messages directly and constructively.
• No matter how well constructed or implemented, no system can make up for a lack of profits or poor financial performance.

For those in search of the "perfect" system the message is clear: You get what you reward. Great compensation systems don't just split the pie; they are a management tool. The best systems are those that promote stability and compensation in the firm, and that put a strong emphasis on merit and performance.

About Harrison Barnes

Harrison Barnes is a prominent figure in the legal placement industry, known for his expertise in attorney placements and his extensive knowledge of the legal profession.

With over 25 years of experience, he has established himself as a leading voice in the field and has helped thousands of lawyers and law students find their ideal career paths.

Barnes is a former federal law clerk and associate at Quinn Emanuel and a graduate of the University of Chicago College and the University of Virginia Law School. He was a Rhodes Scholar Finalist at the University of Chicago and a member of the University of Virginia Law Review. Early in his legal career, he enrolled in Stanford Business School but dropped out because he missed legal recruiting too much.

Barnes' approach to the legal industry is rooted in his commitment to helping lawyers achieve their full potential. He believes that the key to success in the legal profession is to be proactive, persistent, and disciplined in one's approach to work and life. He encourages lawyers to take ownership of their careers and to focus on developing their skills and expertise in a way that aligns with their passions and interests.

One of how Barnes provides support to lawyers is through his writing. On his blog, HarrisonBarnes.com, and BCGSearch.com, he regularly shares his insights and advice on a range of topics related to the legal profession. Through his writing, he aims to empower lawyers to control their careers and make informed decisions about their professional development.

One of Barnes's fundamental philosophies in his writing is the importance of networking. He believes that networking is a critical component of career success and that it is essential for lawyers to establish relationships with others in their field. He encourages lawyers to attend events, join organizations, and connect with others in the legal community to build their professional networks.

Another central theme in Barnes' writing is the importance of personal and professional development. He believes that lawyers should continuously strive to improve themselves and develop their skills to succeed in their careers. He encourages lawyers to pursue ongoing education and training actively, read widely, and seek new opportunities for growth and development.

In addition to his work in the legal industry, Barnes is also a fitness and lifestyle enthusiast. He sees fitness and wellness as integral to his personal and professional development and encourages others to adopt a similar mindset. He starts his day at 4:00 am and dedicates several daily hours to running, weightlifting, and pursuing spiritual disciplines.

Finally, Barnes is a strong advocate for community service and giving back. He volunteers for the University of Chicago, where he is the former area chair of Los Angeles for the University of Chicago Admissions Office. He also serves as the President of the Young Presidents Organization's Century City Los Angeles Chapter, where he works to support and connect young business leaders.

In conclusion, Harrison Barnes is a visionary legal industry leader committed to helping lawyers achieve their full potential. Through his work at BCG Attorney Search, writing, and community involvement, he empowers lawyers to take control of their careers, develop their skills continuously, and lead fulfilling and successful lives. His philosophy of being proactive, persistent, and disciplined, combined with his focus on personal and professional development, makes him a valuable resource for anyone looking to succeed in the legal profession.

About BCG Attorney Search

BCG Attorney Search matches attorneys and law firms with unparalleled expertise and drive, while achieving results. Known globally for its success in locating and placing attorneys in law firms of all sizes, BCG Attorney Search has placed thousands of attorneys in law firms in thousands of different law firms around the country. Unlike other legal placement firms, BCG Attorney Search brings massive resources of over 150 employees to its placement efforts locating positions and opportunities its competitors simply cannot. Every legal recruiter at BCG Attorney Search is a former successful attorney who attended a top law school, worked in top law firms and brought massive drive and commitment to their work. BCG Attorney Search legal recruiters take your legal career seriously and understand attorneys. For more information, please visit www.BCGSearch.com.