One thing that partners care a lot about, but often understand surprisingly little about, is their own compensation. Partners know their take-home pay at the end of the year, but in our experience it is difficult for partners to understand exactly how that number is derived.
In the past two decades we have placed attorneys with over 60 different law firms, and what we have found is that every firm's compensation model is a little different. We have developed several different spectrums to evaluate a firm's compensation model, one of which is subjectivity and objectivity. We find that this is an important aspect to consider when trying to move any partner, group, or when working on a merger.
On one side of the spectrum, some firms have a more objective comp model. These firms pay off a formula, so that if you know what any attorney's working attorney numbers and their originations in a given year, you can tell what their comp will be. These are sometimes called, usually in a derogatory way, "formula shops" or "eat-what-you-kill." Objective pay structures often have a bad reputation for being silos, with greedy lawyers keeping all the work for themselves. But this is unmerited — a formula will in some ways predict and cause behavior, but that behavior depends on what the formula rewards. A formula that highly rewards passing off work can contribute to a very collegial culture. Some benefits of a more objective system:
Partners are rewarded fairly for their performance, so that a partner won't get mad at a comp committee if they have a bad year.
Managing Partners and Executive Committees can spend much less time on determining compensation, since the formula does much of the work for them.
Partners are incentivized to bring in, bill, and pass off lots of work.
On the other side of the spectrum, some firms have a more subjective comp model. These firms usually take productivity into account, but also take into account any number of other more subjective factors. These might include being a good firm citizen, committees or leadership positions, how one is regarded by peers, tenure, pro-bono hours, client relationships, firm relationships, etc. These firms sometimes operate on a point system, in which each attorney is assigned a certain number of points for any number of these factors and then the points are used to determine the comp number. A compensation committee often will spend weeks or months (depending on the size of the firm) on the comp process each year, and often there is an appeals process if someone does not agree with their number. Some benefits of a more subjective system:
Firms can reward partners on intangible factors that really do impact their business and firm reputation.
Firms can incentivize partners to take leadership positions and important committee positions.
Often more subjective models can take care of and shield partners from unforeseen loss of business or lower-production years, on a case-by-case basis.
More subjective firms are built on trust, and so partners who stay tend to be content and loyal.
Firms can be mostly subjective, mostly objective, or any combination in between. Both subjectivity and objectivity have their advantages and disadvantages — one is not superior over another. Some partners enjoy a more objective system, and some enjoy a more subjective system. So it's important to know which you prefer, and why. But we find that to move an attorney or group from a highly objective firm to a highly subjective firm does not usually work, and vice-a-versa.