Best Practice: Does partner compensation make a difference in motivation and actual performance?

Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. We are a 21 attorney firm in San Francisco. Recently we have been considering overhauling our partner compensation in order to foster leadership and more of a team environment. Currently many of our partners are operating and functioning as if they are in separate law firms rather than part of a firm. What are your thoughts? A. With thinner profit margins, firms can no longer carry unproductive partners. Law firms are demanding more from their partners and asking everyone to think outside the box to help the firm innovate for the future and obtain/retain a competitive advantage. This has renewed discussion and debate on the topic of partner compensation and in particular whether compensation can make a difference in motivation, actual performance, and contribution. We are receiving many more inquiries from firms looking to overhaul and redesign their partner compensation systems. Based upon these inquiries we believe that many firms are expecting miracles from their compensation systems and are asking and expecting more than they will ever be able to accomplish. They are not just seeking to align pay with performance – but have far higher expectations. For example:

1. Dramatically improving a partner’s worth ethic.
2. Changing a partner from being a lone ranger to a “firm first” team player.
3. Resolving maverick partner “lone ranger” behavior and getting them to follow firm policy and play by the rules.
4. Getting partners on board with new strategies and getting them to actually implement them.
5. Getting partners to take on leadership roles and become effective leaders.

Expecting a compensation system to perform miracles such as these may be expecting more than any system can deliver. Compensation does not drive behavior – it maintains the status quo. It serves as a reinforcing agent. Motivation requires leadership which can have a greater impact upon a firm than anything else. An effective compensation system serves as a strong messaging and reinforcement agent that helps you obtain and retain top partner talent and helps align their goals and activities with the strategies and goals of the firm. A well designed compensation system should provide:

1. A system that is aligned with the firm’s business strategies, culture, and personality.
2. A reduction in partner dissatisfaction.
3. A system that rewards performance and contribution as well as other behaviors that the firm desires to reinforce.
4. A system that is perceived as fair by the partners.

While you must get partner compensation right in order to acquire and retain top partner talent as well as reward performance and reinforce desired behaviors, the starting point is hiring and retaining the right people to begin with. Jim Collins in his book Good to Great sums it up well with the following comment: “get the right people on the bus, the wrong people off the bus, and the right people in the right seats. People are not your most important asset. The right people are.” “Your compensation system should not be designed to get the right behaviors from the wrong people, but to get the right people on the bus in the first place, and to keep them there. Your compensation system should support that effort. I believe that the following three pronged approach is needed to strategically manage and motivate partner talent in your firm:

1. Get Maverick and Unproductive Partners off the Bus (Deal with Problem Partners)
2. Get the Right People on the Bus and in the Right Seats (Hire Right and Retain)
3. Insure that the Partner Compensation is Reinforcing the Right Behaviors, Rewarding the Right People and Keeping the Right People on the Bus

Click here for our blog on compensation Click here for our published articles John W. Olmstead, MBA, Ph.D, CMC, (www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.