Partner Compensation Trends – Subjective Criteria

One of the most important partner compensation trends I’ve observed is the move to more emphasis on subjective criteria in the compensation process. This topic is covered in the July 4, 2016 issue of Canadian Lawyer article “It’s not all about money” by Michael McKiernan. Michael interviewed me for the article and I provided my comments on this trend in partner compensation:

“According to Colin Cameron, a Vancouver-based law firm management consultant, intangibles are also in vogue in the upper echelons of law firms, despite the enduring popularity of simplistic profit allocation methods such as eat-what-you-kill. EWYK remained the most popular partner compensation method in our survey, used by 35 per cent of responding law firms, but that was down from 40 per cent in 2015.

Cameron predicts the proportion will fall further as partners continue to search out new ways to measure and reward subjective leadership accomplishments that don’t show up in spreadsheets of billable hours and direct revenue generation. “It’s certainly simpler, and in some ways more transparent, to focus on those factors that you can easily put a number to. It’s more difficult to evaluate how good someone’s training is, whether they’re supervising associates properly, and how their project management skills are,” says Cameron. “But I think more and more the trend is for firms to realize they need to recognize these contributions if they’re going to increase their long-term profitability.”

However, the transition often proves tricky, as one respondent at a mid-sized Western law firm complained: “Migrating to a revised compensation model while senior partners oversee the compensation process” has led to problems in “succession planning and rewarding business development efforts” at the firm, they wrote.

“Often there will be different interests between partners, who are perhaps closer to retirement and thinking about cashing out in the short term, versus younger partners just starting out, who are more likely to be thinking longer term,” Cameron says.”

In my experience, an over-emphasis on formulaic or “eat-what-you-kill” compensation systems results in dysfunctional behavior as partners focus on building their own numbers without regard to the firm’s best interests. This often leads to conflict and resentment between partners which can destabilize the firm and erode firm profitability.

 

 

About Colin Cameron

Founder of Profits for Partners, Management Consulting Inc. We provide strategic profit-focused advice to professional service firms based on 25 years of executive management and consulting experience. I am a management consultant, chartered accountant and former COO of a major Vancouver, BC law firm. My specialties are profitability improvement, strategic planning, firm governance, partner compensation, financial management and operations management. View all posts by Colin Cameron

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