It is a myth that an objectively perfect remuneration system exists. Every firm is at a different point in its evolution, competes in its own chosen markets and has individual challenges and goals. Its remuneration system needs to be tailored accordingly.
Rare also is the partner who does not in their heart consider that they are under-remunerated by reference to their contribution and/or the contribution and remuneration of one or more others. It is in the nature of highly driven, intelligent individuals that they want to succeed, both on their own terms and judged against their peers. Consequently, dissatisfaction is potentially in-built in every remuneration system.
It is helpful if there is more than an intellectual understanding of, but rather a real belief by partners in, two principles. The first is that a team pulling together is infinitely stronger than the sum of its individual parts. That is why the partnership model has been so successful for professional firms. In acting together with others, each partner can achieve far more through the medium of the firm, including individually, than could ever be achieved by acting alone. Pulling together means all partners working towards the same strategic goals and supporting one another in that endeavour. Thus, a sound strategy reflecting the aspirations of the partners as a whole underpins any remuneration system.
The second belief that helps partners is that a remuneration decision is not a judgement on their worth as individuals but rather the carefully weighed outcome of decisions on the attainment of strategic goals that the firm collectively has set for its own success. This belief can help partners to view decisions from the firm’s viewpoint rather than their own.
Any remuneration system should motivate behaviours that will drive the success of the business. To do this, any system must align with the firm’s strategy and be fair, trusted and transparent.
What individual partners undertake to do should both advance the firm’s strategy and stretch and develop them as individual partners. The objectives set may be different for each individual but they should all be important planks in enabling the firm collectively to get to where it wants to be. If the goals are sound and everyone successfully plays the part they are allocated, there will be little standing in the firm’s way.
Fairness in any remuneration system chiefly involves consistency of treatment between colleagues whose roles and practice areas may be diverse. It is achieved by agreeing the criteria on which judgements will be based, the collection and sharing of accurate data on which decisions are made, the sharing of views of those in the best position to know, and the opportunity for individual partners to draw to the attention of those making the decisions on remuneration any factors about themselves or others that they consider may not be addressed by the hard data.
Trust in the system is achieved by ensuring not only the accuracy of the data on which decisions are based but also that, in addition to the firm’s senior management (who are ultimately responsible for delivering the implementation of the firm’s strategy), those given the responsibility for making decisions on remuneration have the confidence of partners who will be directly affected by their decisions. This often means that they are elected by equity partner vote or appointed under an agreed procedure. They will consequently be regarded by their peers as people of integrity and sound judgement.
Transparency involves everyone understanding what is expected of them and others, what factors will be taken into account in the decision-making process, and the weighting that will be given to those different factors. Partners also need to understand the timing of decision-making, the communication of decisions and any appeals process.
It is now almost universally accepted that remuneration decisions should be based on wider criteria than purely financial contribution. An equity partner’s role is multi-faceted. For example, culture has become an increasingly important differentiator of law firms and those who are able to have the most influence over both the creation and maintenance of the culture of any firm are its partners.
That is not to say that financial performance does not remain important. It is only good profitability that enables a firm to attract and retain the best talent and to invest in its own future. However, financial data requires careful analysis. A partner may, for example, have strong personal billings but are they ‘hogging work’ which cannot support their charging rate, or which could equally well be undertaken by a less experienced lawyer? Are they successfully delegating to an expanding team of more junior lawyers from whose ranks will come the next generations of partners for the firm? Are they institutionalising their client relationships for the benefit of the firm rather than running their own practice within a practice?
Those with the unenviable task of making decisions on partner remuneration must have in the forefront of their minds what the firm needs and has set itself to achieve. They will not go far wrong if they also have as their sole objectives in this role to act fairly and in the interests of the firm as a whole, without fear or favour.
Tina Williams is a consultant at Fox Williams, London