Partner Remuneration: The Boulder in the Road

Guest article written by Jonathan Blair at Womble Bond Dickinson

The annual lifecycles of all professional services firms have certain key milestones – Year-end, the annual promotions round, salary reviews, partner conference etc.

All of these weighty activities are capable of being moved around in the calendar … But there is one activity which should never be changed because until it is addressed pretty much everything else in the business will go on pause and Management Teams will struggle to get engagement on anything else… and that piece of work is the annual Partner Remuneration Review.

When I was Managing Partner of Womble Bond Dickinson, a fellow Managing Partner once wryly commented that after each Compensation Review she could be confident that she would have only two types of partner in the business – The Unhappy Partner and the Ungrateful Partner… And that tongue in cheek quip highlights the issue. This once a year review (some law firms do biennial reviews but try introducing that when you currently do it annually…) is always highly charged, and will always cause emotions to run high. It is the point in the year when hard working, highly intelligent, ambitious people get their annual school report… and as we move into the Spring that period is fast approaching in many law firms...

I have been around the Partner Remuneration table for over 15 years and in that time I have also had numerous conversations with fellow Managing Partners and sat around many round table discussions wrestling with the complex subject of partner remuneration, and I always noticed that whenever these topics were on the agenda they were – without exception – the best attended sessions of any conference. Why is that? The conclusion I came to is that Management Teams know how important this annual activity is, obviously, and as deeply conscientious people they all approach the remuneration review wanting to ensure that their model is as close to perfection as they can get it to be…and so we are all in search of that perfect model, the Holy Grail of Partner Remuneration Models... but of course it doesn’t exist… if it did these topics wouldn't feature in Law Firm Conferences around the world. Of course we know that but we still keep looking… Maybe, just maybe someone has something which I could use to tweak our review process.

Notwithstanding the problem law firms have differentiating themselves from each other, the perfect remuneration model does not exist because each law firm is different, each has its own unique identity and culture and each firm emphasises specific characteristics in its own way… I once attended a seminar at an IBA conference in Washington DC, and around the table sat 10 Managing Partners from 10 different countries, including the Managing Partner of a Swiss Law firm who told the table, in his introduction, that his firm had designed a piece of software which gave them the answer without the need for hours and hours of being locked in meeting rooms poring over appraisal forms and data: he explained that the agreed metrics from the KPIs were fed into the computer at one end, and the partner's remuneration outcome popped out the other end. Sounds bold, sounds simple…. sounds potentially incredibly efficient. So how did it work in practice? Badly was the answer. The theory was sound, all the partners (it was a c20 partner firm) agreed the metrics but the computer gave the wrong answer. It looked right on paper, the algorithm worked, but in the real world it didn't pass muster. We should not be surprised by this. Law firms are people businesses, the partners are people and a system which only ever looks at objective data will always miss the subtleties, the nuances, the context within which the partners work. And so over the years my conclusion is while there is no one size fits all model, nevertheless the best models need both objective and subjective measures.

While each firm will need to devise its own system to suit its culture there are other features which all the best models have. Trust is the key one. Trust in the process and trust in the decision making body. In addition, all of the best models need to have integrity and transparency. And by transparency I don't necessarily mean an open book system – although personally I favour these – but being transparent about the process, and what will - and will not - be taken into account. In her excellent book Leading Professionals: Power, Politics and Prima Donnas, Laura Empson argues "… Professional organisations embody a delicate balance between the interests of the individual and the interests of the Collective". And the best remuneration models will recognise this tension, and devise a model which best suits the sort of firm they are and seek to achieve the delicate balance which is required for harmony to break out…or, if not harmony, at least something approaching equilibrium.

If there is no off the shelf answer to this ongoing debate, there are nevertheless other key characteristics which all the best models have. Having a system, and one which is understood, is essential. Each firm has to agree who the decision making body will be. In some firms it is the Managing Partner alone, in others it is all of the Executive. In others still, it is neither of these but rather a wholly "independent" body, perhaps a group which includes a Non-Executive Director, separate and distinct from the board. Best practice says the system will have a set of agreed and published Remuneration Rules, the timetable too will be published and each year the partners will know when the Remuneration review will take place and when they will learn their outcome. Many models include Review Reports which are published by the decision making body and which set out the context for that year's review, as well as a reminder of the principles on which the review is held, and some models also have rights of appeal. From time to time law firms will announce a review of their models. Good governance demands that this is done periodically, just don't do it in the run up to an annual review period. It is never a good plan to have a debate in the eye of a storm.

In summary, there is no silver bullet to answer the ever present conundrum of partner remuneration, but the best models do have trust, integrity, and transparency at their core.  Each law firm is unique and as such deserves a unique remuneration model which will work for them. While the model which another firm uses may look attractive will it work in your firm? Does that "comparable" law firm balance Laura Empson's finely balanced scales at the same point?

And remember there is one thing we do know with absolute certainty…don't mess with the Remuneration Review…