How transparent or opaque should a firm's compensation system be? Justin Henry at law.com reports on a trend of some elite firms opting to move to a less transparent system. He cites Paul Weiss as an example of a firm that has moved to a black box system, even as (or perhaps because) they are trying to open a Houston office.
"Every firm with a non-transparent pay system has a different approach, with some going as far as penalizing discussions of compensation and others providing limited information upon request," Henry writes. "But the motivation for restricting payment details remains largely the same: firm leaders employing this black-box style of compensation say it reduces tension among partners over the fairness of pay while promoting a culture of collaboration."
As we have worked with and observed different comp models over the past three decades, we have seen every level of transparency – from every associate knowing what every partner makes, to black-box and you are fired if you are caught disclosing your numbers. There are advantages and disadvantages to both. One of the main advantages to a closed system is flexibility to invest in a new market and to heavily reward rainmakers. One of the main advantages to a transparent system is the trust it engenders.
From a recruiting standpoint, any attorney needs to know what they are getting into. Some, if they are happy with their number and trust the EC, couldn't care less what someone down the hall is making; some want to know exactly how the pudding gets made. A partner accustomed to transparency is going to struggle to move to a closed system; a partner used to black box may feel exposed at a more transparent firm.
At the end of the day, there is not a perfect solution, and firms have to decide based on their values and goals how much information to share. But, "[p]artners are dissatisfied when they don't know how to move their own needle," said Tim Regan, a recruiter, in the article. This is a great point. Whichever system a firm chooses, lawyers want to know how to make the most they can. They are smart, and whatever a comp system rewards is what they will pursue. In a transparent system, as long as the incentives make sense, this is easy. In a black-box, the firm may need to communicate more intentionally some of its evaluative criteria to direct efforts in the right direction and to avoid frustration.
Read the full article from law.com here.
If you would like to have a confidential conversation about your compensation system, please feel free to reach out to one of our experienced legal consultants.