Cotterman: In Defense of "Lockstep" Compensation System

Admin — Mon, 14 Jan 2008 08:00:18 GMT

Many, including myself, have for several reasons (in my case, personal experience), railed against lockstep compensation as a debilitating agent to per partner income and the ability to keep top attorneys. I have seen the internal griping, the uncomfortable situations, and the inevitable loss of talent because of the appearance of unfair distribution of compensation based on a lockstep system.

James Cotterman, however, in an January 3rd post, argues "[t]he success or failure of any compensation system is not simply inherent within the structure of the program." He defends the lockstep compensation system - with a caveat:

[A] pure lock-step program largely requires the firm to assess a senior associate’s ability to progress as a partner over the remainder of his/her career. Essentially you are making some thirty or more years of future compensation decisions at one time. Such an assessment requires much more careful attention to the qualities of being a partner. And such attention is rare.

Among the benefits of lockstep compensation plans:

1. It supports a single firm philosophy.
2. There is little internal competition.
3. Leadership has more time to lead without the annual compensation ritual.
4. Non-traditional roles and new postings are more easily undertaken.

1. It supports a single firm philosophy.
I agree and disagree. It should support the single firm philosophy in that it treats all partners more or less the same. However, I don't assume a single-firm philosophy requires socialistic tendencies. In fact, such tendencies in a market system don't work well and can lead to a split up of the single firm. Also, the system in many ways requires trust within the firm that everyone will do their part. As David Maister has aptly noted, attorneys aren't big on trusting each other. In declaring that law firms are unmanageable professional entities, Maister wrote:

Recently, I was advising a firm on its compensation system. They didn’t like my recommendations. Finally, one of the partners said, “David, all your recommendations are based on the assumption that we trust each other and trust our executive or compensation committees. We don’t. Give us a system that doesn’t require us to trust each other!”

2. There is little internal competition.
Little internal competition should help foster trust and teamwork. Experience tells me that little internal competition fosters laziness. Distrust is a problem but competition is not. Measurement improves performance. However, if you don't care that you are being measured, then you won't excel. Incentives to reach goals fosters competition and that isn't a bad thing. If you incent properly (ie factor "firm citizenship" into your compensation system), teamwork will be rewarded.

3. Leadership has more time to lead without the annual compensation ritual.
There is no question that compensation discussions are a large source of discontent and delay in implementing strategic plans. If all partners agree to a compensation plan that is not going to change, that would be a great thing. Do I believe that is possible? Perhaps, if, as Cotterman notes, firms give more attention to the qualities of being a partner - ie, they are consensus-builders in the Henry Clay mold and can make "some thirty or more years of future compensation decisions at one time".

4. Non-traditional roles and new postings are more easily undertaken.
If compensation isn't affected, attorneys should be more willing to take on roles that otherwise would affect their ability to maintain their income.

Cotterman discusses two main arguments against lockstep compensation:

1. There is no accountability.
2. Stars are not specifically recognized monetarily (at least not instantly).

I made both of those arguments above in disagreeing in part to the arguments for lockstep compensation. Without measurement, there is no accountability. Without accountability, internal strife erupts and your star attorneys walk. So I don't disagree a bit to either argument.

Cotterman notes that some of the most prestigious and profitable firms in New York and the UK use lockstep compensation. This is proof enough that the system can work. However, I would argue (as he does) that a commitment to the mangement of the firm and a single-firm philosophy is critical to it success. The challenge for small and mid-size law firms is to create an environment that fosters teamwork and manageability. For the lockstep compensation to work, firms need their own Henry Clay who can effectively communicate the philosophy that supports the system and the consensus-building qualities to bring others to agreement.

That said, even Clay couldn't ultimately prevent the Civil War. I'm still against lockstep compensation. However, for those who want a guide on how to make it work (as it certainly can work, I am just not a proponent of it), read his article here.

Remove Consumption Barriers for Increased Law Firm Revenue

Admin — Thu, 26 Jul 2007 18:47:00 GMT

There are three key strategies for increasing revenue from existing clients:

Make it easier and simpler for people to get what they need
Provide good enough solutions to those with low-end requirements and risk
Remove barriers to consumption

Talk to a small business owner or mid-level executives in larger businesses and you find out that they avoid calling their attorney. Why? Because they know that the clock is always running and can easily escalate into a significant unplanned expense out of proportion to the client’s sense of need or risk.

On a recent trip to southeast France, I went to their version of a grocery store. The Intermarche’ is the French equivalent of Kroger, Publix, Albertsons or Wegmans. There is one big difference. U.S. stores encourage consumption by making the experience convenient for shoppers. The Intermarche’ reflects a French culture that discourages consumption.

Upon entering the store, the only available equipment for gathering my purchases were small plastic hand baskets about the size of those you see mounted on the handle bars of a bicycle. That was hardly what I needed to stock the rented villa for our group of eight. As it turned out, traditional wheeled shopping carts were located in the parking area. However, you had to deposit one Euro coin into a locking device to release the chain securing the cart. Of course, I didn’t have a Euro coin, so I returned to the store for change. The next surprise occurred when checking out. There were no bags, no boxes, and no sackers. You are expected to bring your own bag and sack your own groceries. Of course, I was the only person in the checkout lane with a week’s supply of merchandise. French shoppers limited their purchases. Each had their own shopping bag or individually decorated basket that they reused for shopping purposes.

Like the Intermarche’, law firms have erected barriers to consumption and can increase fee revenue and partner income by tearing down those barriers. Firms need to proactively propose a pricing arrangement that encourages their small business clients and mid-range corporate executives to call. In developing a pricing structure, put yourself in the shoes of your client. Predictability is often more important than actual cost. Department heads, division heads and other corporate executives are held accountable for their financial targets. Proactively offer a retainer arrangement that covers consultation on issues related to the normal operation of the business. The arrangement can provide that law firm services related to any particular matter that (in the judgment of the law firm) appear to require significant individual work shall be undertaken by the law firm only under a separate engagement agreement. The retainer arrangement will eliminate surprises. The clock only starts running when the law firm notifies the client that additional work on a particular matter will be outside of the scope of the retainer arrangement.

The client will call more often. The law firm will cement its position as a trusted advisor. More calls increase the opportunity for the law firm to add value under its traditional billing methods. The client will be happier and the law firm will increase fee revenue and per partner income.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

Make More Rain : compensation, alternative billing

Cotterman: In Defense of "Lockstep" Compensation System

Remove Consumption Barriers for Increased Law Firm Revenue