2012 Global Partner Compensation Survey    

This week's headlines in Alaska brought a tragic story about four climbers on Mt. McKinley (highest peak in North America).  Because the weather had been predicted to be quite good, the climbers chose to leave a lot of heavy equipment behind, e.g., snow shovel, ice saw, so that they could summit and descend more rapidly.  During the climb, however, the weather changed for the worse, and those discarded items made the difference between life and death.  Without tools for managing ice and snow, the climbers' choices about how to survive were reduced to a pitiful few.   Only heroic rescue attempts managed to save the lives of three climbers, but they were horribly frostbitten.

In hindsight, it is so easy to observe the faulty judgment of the climbers. The failure to plan for absolutely predictable events left the climbers with diminished choices about how to protect themselves.

What does this have to do with practicing law?  Well, in Legal Project Management sessions with lawyers, we deconstruct matters that did not live up to client expectations. We ask "were the events you experienced in this matter predictable from the outset?"  or "have they ever happened before?" 

In almost every case, the lawyers readily admit that the events were neither novel nor completely unforeseen.  In fact, the lawyers can provide robust lists of events that have occurred in similar matters. So, if the variations weren't unique, why not plan for them?  Why do lawyers repeatedly fail to plan for "changes in the weather," so to speak?   

Quite simply, they confuse possibility with probability. Although lawyers are not naturally optimistic folks, when it comes to predicting to a client the course of a particular matter, they don the cheery, best-case cloak and assume that things will go swimmingly (low probability of variations occurring), even though any observation of past matters would inform them of their folly (high probability of variation occurring). We don't know if the source of that optimism is expediency or the fond hope that things will go off without a hitch.

Clients need to know both the possibilities that might impact the course of a matter and the probabilities that those variations might occur. The very best attorneys now provide that information, and, as a result, their clients are better able to plan, budget, reserve, and inform management of the likelihood of changes and their impacts on the matters, budgets and outcomes.

The 2012 Edge International Global Partner Compensation System Survey highlighted that appointments of salaried partners are increasing. These are lawyers appointed partner and paid a fixed amount in money or an amount of money based on a fixed percentage share - sometimes termed "fixed equity". A majority of surveyed firms use the salaried partner regime and the trend is anticipated to continue.

I favour the salaried partner regime provided it is properly introduced and managed. It can be a powerful financial engine of a firm, building a strong foundation for future success - motivated young lawyers, providing for leadership and partnership succession and encouraging the right behaviours.

The GOOD - salaried partnership:

1. is an obvious way to recognise high performing lawyers - sending a positive signal & building confidence;
2. is a good testing ground before progression to equity;
3. is a chance for lawyers to find their feet while experiencing a form of partnership first-hand;
4. provides status - sometimes important to the individual and for clients;
5. can be an ideal alternative to equity partnership for those who for personal reasons don't seek equity;
6. is good for lawyers who won't meet equity performance criteria but are otherwise outstanding;
7. is ideal when it may be difficult or 'impossible' to appoint equity partners, but where you want to keep and motivate someone;
8. provides a realistic buffer to poaching firms and a counter to lawyers leaving for greener pastures.

The BAD and UGLY - all this can come unstuck if the salaried partner regime is not used or implemented effectively - to the detriment of those partners, the equity partners and the firm as a whole. For instance:

1. salaried partnership simply used as a blockage to equity; and
2. salaried partners are partners in name only.

The consequences: salaried partners:

1. become seen only as a "necessary evil";
2. become marginalised within the firm;
3. become an isolated, disgruntled, underperforming group and serious veins of mistrust develop within the partner ranks; this directly impacts self-esteem - a no-win situation for everyone concerned - a vicious circle in the making;
4. as they realise they are not truly 'partners' it creates distrust, lack of respect and ultimately, lack of loyalty - in the heart of the partnership group. Hard to imagine that a partnership governance structure would knowingly do this;
5. learn the same poor values and bad behaviours which does not bide well for the future long-term success of the firm; and
6. who are top performers, will see the writing on the wall early, and leave; the regime becomes a holding ground for mediocre, disgruntled performers. The vicious circle is complete.

Back to the GOOD: the solution

It is possible to turn the salaried partner regime into a positive part of a firm;

• be frank about why you're using your salaried partner regime - even if the reason is to retain equity tightly. Salaried partners will respect this. Good ones will compete to earn some of that tightly-held equity;
• be upfront with an aspiring partner who has no realistic chance of becoming an equity partner;
• treat them as partners in every sense, possibly with limited exclusions around sensitive equity partnership discussions and information, and decisions on admission, progression and exits;
• treat them with respect (as if they are truly your future leaders and owners);
• make it clear they are expected to behave and perform like partners in every respect and meet the same performance criteria (albeit at slightly lower levels).  

Do this and you will be rewarded in spades. You will also have a happier partner group. I would go even further; any firm that does not have this system functioning successfully will find it very hard to compete with others that do. It is time to ensure any bad or ugly elements of your salaried partnership regime become good.