Category: Leadership

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Is Your Partner Compensation System Working?

Ask a managing partner whether the compensation plan is working and you will usually get an answer about the last allocation meeting. It went fine. Nobody stormed out. A couple of partners grumbled and then signed. The plan must be working.

That is the wrong test, and it is the one almost everyone uses.

A peaceful partnership tells you the plan is predictable. It doesn’t tell you whether the plan is paying for what the firm needs to achieve its strategic goals. Partners who have worked out how their number gets set stop arguing about it and start playing to it. If the plan pays for personal billings and originations, that is what you will get. The peace you are enjoying in January is the sound of that arrangement running smoothly.

Here is a better test. Take the three or four things your strategic plan says the firm needs to do over the next two years. For each one, find the specific component of the compensation plan that makes a partner financially better off for having done it. The strategy asks for cross-selling and the plan pays for originations. The strategy asks for orderly succession and the plan lets a retiring partner hold client credit until the day he walks out. Partners follow the money every time, and they are right to.

The clearest version of this shows up in delegation. The proper use of leverage is the most commonly ignored profitability lever in law firms, and compensation is usually the reason it gets ignored. When a partner’s pay turns on personal billable hours, every file handed down to an associate is money out of that partner’s pocket, so the partner keeps the file. Your most expensive person does work a third-year could do. The associate does not develop. The matter gets billed at a rate your client is increasingly unwilling to pay. None of this comes up at the allocation meeting, and there is no line item for it anywhere in your financials. It shows up three years later, as a partner class you cannot promote.

And these days, AI adoption and implementation is likely listed as one of the most important strategic goals for most firms. However, many law firms’ compensation systems are not equipped to address this issue. If your firm has an “eat what you kill” system, how do you reward partners for dedicating non-billable time to helping build AI systems which benefit the whole firm?

The next place to look is the equity itself. Ask how many of your equity partners would be admitted to equity partnership today, based on their current performance. Firms cut associates and staff when times get tight and leave the partner ranks alone. That protects the current year and gives away the leverage that carries the next five.

That brings you to the plan’s underlying design. Generally speaking, firms with subjective compensation systems are more profitable than formula-based firms. Formulas are easier to administer and easier to defend, but they push partners toward personal production at the expense of everything the firm needs that a formula cannot see. An eat-what-you-kill approach can stunt the growth of an otherwise healthy firm. In my experience it produces conflict and resentment between partners who each believed they were behaving reasonably.

A subjective system asks more of your governance than a formula does. Someone has to decide, and the decision has to hold up in front of people who will dislike it. In my experience, top-down centralized management is the most efficient and effective way to manage, and compensation is where that view gets tested hardest. Give a small committee real authority and a written process it has to follow. Publish the criteria before the year starts, while partners can still respond to them. Then give every partner a written explanation of their own number. Having to write the reasoning down improves the reasoning, and that is often the larger benefit.

Partners will accept a number they dislike if they believe it was reached on the merits. They will not accept a number they cannot trace, however carefully you arrived at it. Trust in the process is worth more to a firm than how precisely the formula is calculated.

If you want a rough read on where your own plan sits, I have put together a short diagnostic below that walks through the areas where compensation tends to work against the firm. It takes about four minutes. It is a starting point, not a substitute for a proper compensation review.

TAKE THE PARTNER COMPENSATION SYSTEM DIAGNOSTIC

Contact me if you’d like to discuss.

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Session Recap: Bringing Ease to Managing a Legal Team

The average cost of losing an associate who joined as an articling student is somewhere between $300,000 and $500,000. They tend to leave right around year four or five, exactly when they start becoming profitable. A significant driver of that turnover is management behavior that many firms have not figured out how to measure or reward.

That was the thread running through the session Sandra Bekhor of Bekhor Management and I hosted on June 25. See the recording here. Sandra has spent more than 20 years coaching lawyers on leadership and team management, with a particular focus on delegation and feedback. I came at it from the profitability side. What kept coming back is how directly management habits shape firm economics, and how rarely firms treat the two as connected.

Why Managing a Legal Team Is So Hard

We started with what most managing partners already know but rarely name directly: lawyers are not trained to manage people. Law school trains the critical, analytical mind. It rewards the lawyer who finds the flaw in an argument and who assesses risk before anyone else in the room does. Those skills are essential for legal work. In a management conversation, the instinct to find the flaw is usually the thing that gets in the way.

Sandra made the point that good management requires a different part of the mind: empathy and the ability to listen without immediately judging. Lawyers have those capacities. They are just not the ones that get reinforced in legal training or firm culture.

So when lawyers move into senior roles, they are expected to lead and develop their people, without much preparation for either. And without strong role models in the firm to learn from, most are expected to figure it out on their own, which usually means they do not.

The Cost of Withheld Feedback

One of the patterns Sandra sees consistently: litigators who will argue fearlessly in court will not give a direct piece of critical feedback to an associate.

Her explanation made sense to me. In court, everything is rule-bound. The norms for how to behave are clear, and following them is not seen as aggressive. In a feedback conversation, there is no rulebook. The associate is someone you work beside every day. So the conversation gets deferred.

The cost compounds. An associate who makes a mistake in January and does not hear about it will repeat it in February, March, and April. By year-end review, the associate is hearing critical feedback for the first time, on twelve months of work. That is not just a development failure. It is a profitability problem. You have a person billing on your behalf all year at a fraction of what they could be producing.

One point Sandra raised that I do not think gets enough attention: your strongest performers want feedback just as much as anyone who is struggling, if not more. High performers are driven to grow. If your firm is not part of that growth, they will find one that is. They tend to leave right around year four or five. That is exactly when your investment in them starts to pay off.

Why Delegation Does Not Happen

This is where the financial case becomes very direct. Work that goes to a $350 associate should not be sitting with a partner billing at $800 or $900 an hour. The billing math here is clear, even if the behavior rarely reflects it.

Sandra identified fear of losing control as the primary obstacle. That fear is legitimate and takes different forms. Some partners worry about their reputation if a file goes wrong. Some fear client complaints. Some are simply convinced the work will come back needing to be redone anyway.

I added the structural piece. In many firms, partner compensation is tied primarily to billable hours. A partner who delegates aggressively is reducing her own hours. Her compensation reflects that. So she keeps the work. That is a rational response to the system in front of her, but it works directly against your firm’s long-term profitability.

Sandra’s reframe on this: partners who invest in training their team lose some billable hours in the short term. But if the team develops and stays, profitability rises over time. In my experience, the partners who invest in their people tend to build the more profitable practices.

What to Do About It

The practical suggestions we landed on were straightforward.

At the start of each year, each associate identifies two or three personal goals in conversation with the supervising partner. Specific goals tied to that person’s career trajectory, not pulled from a firm-wide checklist. Then a check-in every 90 days. This gives the partner a natural framework for feedback that does not feel adversarial, and it signals to the associate that someone is paying attention. That signal matters more than most firms realize.

Sandra and I both referenced the Balanced Scorecard as a structural tool worth considering. The idea is to measure partner performance beyond billing metrics. Financial results matter, but so does how well partners are developing their teams and building capacity for the long term. For a managing partner compensated partly against a balanced scorecard, the non-billable work of developing people gets counted. That changes behavior.

The harder question, which an audience member put directly, is how you make management changes stick when partners are still paid primarily on billable hours. The honest answer is that you probably cannot, not at scale and not over time. Some portion of partner compensation needs to reflect how well partners are managing and delegating. Even five or ten percent signals that the firm takes it seriously. Setting those goals at the start of the year and reviewing them at the 90-day mark gives it structure.

The AI Question

Near the end of the session, an audience member raised a specific question about AI and delegation: if junior work is being replaced by AI, what do you do with your junior associates and paralegals?

One view: you retrain them as validators. Have AI take the first pass. Have the junior associate review the output and produce a corrected version, then send that to a senior associate or partner for a final pass. The skills shift from producing the work to interrogating it. That is a legitimate developmental path, and some firms are already building it into how they count billable hours.

Sandra’s point: whatever structure you build around AI tools, the management principles for developing your people hold.

None of what Sandra and I described is complicated. What makes it hard is that many small and midsize firm partner compensation systems actively reward the opposite behavior. If you want to think through what changing that looks like in your firm, reach out.

Rethinking the COO Role in Law Firms

Law firms have always been led by lawyers. The senior partner was often both rainmaker and chief administrator, managing everything from finances to facilities. That model worked when the business of law was simpler and the competition was local. It no longer fits the complexity of today’s legal market.

It is time to rethink what this role should entail and who is best suited for it.

The Role of the COO

The main role of a COO in a law firm is to run the firm’s business operations. Partners’ time is best spent practicing law and building client relationships. Someone must ensure that the business runs efficiently behind the scenes.

The COO position includes creating the systems and discipline that enable partners to focus on client work. A strong COO connects the dots between finance, operations, people, and strategy. This relieves partners of this task and helps execute the firm’s goals.

The New Skills Required

The skill set for today’s COO has changed. Now legal COOs must be fluent in both management skills and technology. They must understand automation and AI applications that can streamline workflows and improve decision-making.

Strong COOs now act as translators between business strategy and operational execution. They can analyze profitability at the matter and client level. They can interpret financial and operational data to guide strategic investments. And they can communicate these insights to lawyers in ways that lead to action.

The most effective COOs combine four abilities:

  • Operational discipline to ensure the firm’s core systems run smoothly.
  • Financial literacy to create budgets and new pricing models.
  • Technology fluency to identify where automation and AI create leverage.
  • Leadership credibility to influence senior lawyers without authority based on title.

These abilities rarely come from the traditional legal path. That is why many of the most successful COOs in professional services come from finance, consulting, or technology backgrounds.

Why Some Firms Struggle to Empower the COO

Even when firms hire a capable COO, many fail to use the role effectively. In some partnerships, operations managers are limited to managing facilities, HR, or IT. This limits the COO’s ability to execute. Without clear authority, the role becomes reactive rather than strategic.

Empowering a COO requires the managing partner and the executive committee to treat the role as part of firm leadership, not support staff. The COO should sit at the table where strategic and financial decisions are made, with access to the same data and accountability.

The COO and Change Management

Law firms face rising cost pressures and technology-driven disruption. These challenges cannot be solved through individual effort or incremental change. They require systemic thinking, the kind that a professional COO brings.

A forward-looking COO can lead firmwide initiatives in areas such as:

  • Redesigning work allocation models that improve leverage and profitability.
  • Introducing firm-level KPIs and dashboards to measure performance in real time.
  • Managing AI adoption projects across practice groups.
  • Building training programs that develop “business of law” concepts among lawyers.

The goal is to help the Managing Partner execute on the firm’s strategic plan. The COO becomes the connection that links strategy with day-to-day execution. COOs can also take on many of the regular duties of the Managing Partner so that they can focus on higher-level firm strategy and leadership objectives.

What Law Firms Should Do Next

Every firm should begin by asking a simple question: What is our COO actually accountable for? If the answer sounds administrative rather than strategic, the firm may be missing an opportunity.

The next step is to align the COO’s role with measurable outcomes. Examples include improvement in profit per partner or percentage of work automated. These are results that move the firm forward and justify the investment in senior operational leadership.

Closing Thoughts

The modern law firm operates more like a business than a traditional partnership. Rethinking the COO role involves giving COOs more authority and accountability to give the firm a strategic advantage. This can also lead to non-lawyer COOs becoming CEOs or recruiting non-lawyer CEOs from other industries. Given the immense changes happening in the legal industry today, high-end professional management in law firms is becoming a must-have in order to succeed.