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Legal Business

Building consensus in compensation: the Addleshaws case study

Another well-intentioned and innovative reform to a law firm's partner compensation system has been aborted.

The senior management team at one of the United Kingdom's better-managed law firms, Addleshaw Goddard, has been forced, by what appears to be unexpectedly strong opposition from some of their partners, not to go forward with a proposed transition from lockstep compensation to a scheme more strongly oriented toward partner performance. The story is summarized in an article today at The Lawyer website.

The apparent strength of the opposition suggests that The Lawyer's headline characterization of the changes as a "rejig" might be an understatement.  Any shift from lockstep compensation toward performance-based compensation is always a substantial change with long-term implications.

My colleagues and I at Walker Clark advise our clients to involve all equity partners, as well as those who are likely to become equity partners within the next two or three years, at the early stages of any review of the partner compensation system or adjustment to the firm's equity distribution.

If the partnership is relatively small, we can do this at a partners meeting dedicated exclusively to the topic of compensation.  In larger partnerships, we usually conduct a confidential, detailed survey about partner compensation issues. We also make sure that every equity partner is invited to have a confidential interview with one of our team. Nobody is excluded.

This can sometimes be time-consuming in the short term. However, our approach can identify areas of broad consensus on with the final details can be built. It also identifies areas of disagreement and potential objections before management spends time developing proposals that have little chance of being adopted. It eliminates "surprises" that can undo even the best-intentioned, careful work by the management team.

If a managing partner or senior partner finds it necessary to "sell" proposed changes in partner compensation to a significant portion of the partnership, this is a usually an indicator of flaws in the process by which the proposals were developed, such as:

  • Management might have underestimated the significance of the proposed changes to the partner compensation system.
  • Some significant detail might have been overlooked.
  • The changes might have produced unexpected and, for some partners, undesirable results that might not have been apparent when the proposal was finalized for presentation to the partnership.
  • A partner or group of partners were excluded from the process or otherwise made to feel disenfranchised.

This does not mean that management should hesitate to advance well-reasoned, thoroughly-considered compensation proposals because opposition is expected.  To do so could give greed a veto. My colleagues and I have seen law firm partnerships that were paralyzed by the self-imposed need for unanimity - not just about compensation but about even minor decisions.

However, by investing the additional time and resources early in the process, management can improve the chances that the ultimate results will be better, not only despite reasoned opposition but also because of it.

For more information on Walker Clark advice and services in the area of partner compensation systems and equity redistributions, go to the Walker Clark website.

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