This is a joint post by David Barnard & Mark Shapiro of Blaqwell and Jack Bostelman of KM/JD Consulting Blaqwell is a pre-eminent consultancy that advises top law firms on high-level issues, such as strategy, mergers & acquisitions, compensation systems, performance measurement and lateral hiring strategies. KM/JD Consulting advises leaders of Am Law 200 firms how to improve practice group productivity and achieve real follow-through from lawyers on internal initiatives.

Are you compensating for the right partner behaviors?

Recently, Blaqwell partner David Barnard was interviewed by the American Lawyer in a podcast on law firm compensation systems. You can listen to

the 10-minute podcast here. In the podcast, David addresses the following questions:

• Why are so many firms thinking about changing their partner compensation system?
• How should partners be compensated to deliver what clients want today?
• What is the key metric that should be rewarded – originations, realizations, profitability, something else?
• How should compensation vary among classes of partners without disrupting the culture of the firm?
• How can the compensation system stimulate growth of the firm?
• What is the place of bonuses in a compensation system?
• How should declining performance be handled in the compensation system?
• How much should seniority count in partner compensation?
• How should a firm go about changing its compensation system?
• How does compensation relate to strategy?

Strategy and compensation

It has been said that if a firm does not have a strategy[*], then its compensation system is its strategy. A compensation system is the most powerful partner motivator a firm has. It's not the only one, of course, and can be a blunt instrument. Nevertheless, it is the most powerful. If a firm has a strategy or business plan but does not align compensation to serve the plan, the plan may falter or even fail, depending how far out of alignment the compensation system is.

An important step in considering the urgency of the need to revise the firm's compensation system is, therefore, to analyze the degree to which the compensation system supports or works at cross-purposes to the firm's strategy. For example, if the firm's strategy focuses on improving profitability, but it compensates partners based on origination, realization and billable hours, the firm is incentivizing potential discounting and work hoarding, rather than behaviors that can improve profitability, such as increasing leverage on matters, work sharing and pushing work down to the lowest cost qualified timekeeper.

Thus, the compensation system should be considered in light of the behaviors that will further the goals of the firm's strategy and business plan, and whether compensation is incentivizing the desired behaviors.

More answers to compensation questions

Our next blog post will be the first in a series on law firm compensation systems. We will elaborate on the points addressed in David's podcast as well as many other key issues, including practical issues around obtaining partner buy-in for changing the system.

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[*]        We have previously addressed strategic plans in a 3-part series: Part 1: What is a strategy? And why you need one; Part 2: How to choose a strategy – and why it must include growth; and Part 3: How to build a strategy to focus and excel at a handful of businesses.

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