Change is always hard. But thanks to a recession that left many firms’ partner compensation systems “grossly out of touch with the new business of law,” change may be necessary, according to preliminary findings from LawVision’s Partner Compensation System Survey. But beware blind spots that could lead to unintended consequences.
Likening changing a partner compensation system to handling dynamite, Michael D. Short writes that many such systems should be objectively and thoughtfully reexamined even if everything seems to be fine.
“If you know what you’re doing and why, everything will go well,” he says of changing a system. “If you don’t, you could accidentally create some major damage. It is a process fraught with unintended consequences.”
The process is also fraught with several potential blind spots you need to be aware of in order to ensure your partner compensation system isn’t creating long-term problems. The blind spots include:
- Succession Planning. Thanks to the “graying” of many partnerships, Short calls this a “ticking time bomb” since most partners simply don’t have a plan to pass on their knowledge or to transition their clients to new attorneys when they retire.
- Practice Profitability. Today’s increasing fee resistance and declining realization rates have taken a toll on firms’ ability to generate revenue, which decreases the firms’ profitability. Yet many partners are still paid based upon the revenue they generate without taking into consideration the costs of generating that revenue.
- Common or Shared Work Ethic. In some firms, partners are paid based solely on their billable time, not their nonbillable time. This creates two problems: 1. The bigger the variance between top and low performers’ hours the more likely top performers will leave because they believe low performers aren’t pulling their own weight, and 2. So-called “low” performers may, in fact, be spending many nonbillible hours in business development.
Short calls the preliminary data “valuable information for a firm to determine if changes are needed and which combination of changes may make the most sense,” noting that over 90 law firms have so far contributed to the survey. To read the full article, and find out about participating in the survey, click here.