A few days ago I received this email from a reader, with respect to my
"Optimal
Partner Compensation" post:
"I like
your point of view, but with one question: how do you calculate/compare
the 30 percent kicker [up or down] at the end of the comp cycle without
a formula, particularly in a middle- to large-size firm?"—Dave
[from an AmLaw 100 firm]
Here’s my response:
The short answer to your question is, I think,
two-fold: First of all, a formula always makes
life simpler—no question about it. Particularly
when everyone understands the formula going in (“transparency”),
it’s hard for anyone to argue they were surprised/disappointed at
the end of the year.
The biggest source of discontent with
compensation is always the catch-all complaint that it was “unfair.” By
definition, if there’s a formula and one behaves all year long based
on the metrics in the formula, it’s hard to complain that it
was “unfair”–one can of course take issue with the metrics themselves,
but that’s a different topic. You cannot argue that the rules
were changed in the middle of the game or “interpreted” wrongly–because
it’s a formula, there’s no “interpretation” involved.
But the problem with formulas, IMHO, is like the
old joke: “For every problem, there’s a solution which is obvious,
simple–and wrong.”
Bringing me to the second point: I
just don’t believe as a matter of conscience and my (limited!)
understanding of human nature that a year’s worth of complex professional
behavior and activity can be reduced to a formula. As
they say, “stuff happens.”
Just hypothetically, imagine that
an important part of The Formula is hours personally billed and collected
by a partner (not unreasonable as a component, although I would argue
overweighting personal-billables can lead to "hoarding," consciously
neglecting associate development, and other anti-social behavior). Now
suppose a key practice group leader decamps early in the year to
a competitor, and you or I suck it up and step into the breach left
by the departure, for the good of the firm. I will
bet our billed-and-collected hours would
not be what they would have been had we stayed “home” in our familiar
practice area with our familiar clients.
But should we really
be penalized for doing what’s best for the firm?
You get my drift.
Moreover, there’s still life to the notion that
partnerships are, if not for life, at least for the long run. The implication
of this, I believe, is that people can forgive and understand what
they might perceive as “minor” deviations from perfection from year
to year if there is an ongoing solid consensus that over the long
run the firm rewards people fairly.
As I said in the original post, the acid test is if over time and
across all partners, people will agree that "yeah, it seems about right." Never
under-estimate the power of humans (and lawyers in particular!) to
sniff out fundamental unfairness—and its virtuous opposite.
