An "evergreen" topic here at "Adam Smith, Esq.," because one
despairs to find a durable equilibrium solution for it, is the
perennial debate over "eat what you kill" (EWYK) vs. lockstep
compensation systems.

Each has its place in the life-cycle of a firm, and firms will
want to position themselves at different points on the spectrum—never
lose sight of the fact that it is a spectrum—as
their internal and external competitive challenges evolve, but
it’s always a fascinating topic to recur to.

Today we have the results of
a Legal Week poll, which they summarize as follows:

"Merit-based pay for partners is sweeping UK law firms,
but still struggling to win hearts and minds, according to new
research that shows so-called eat-what-you-kill systems of reward
are often unpopular with senior lawyers."

Specifically, respondents ranked the desirability of the four
alternatives presented in this order:

• "modified lockstep" emphasizing merit:  37%
• pure lockstep:  24%
• "modified lockstep" emphasizing seniority:  20%
• pure EWYK:  19%

More telling, as usual, than the raw statistics are some of
the comments.  A Debevoise partner proclaimed himself a
"big believer in pure lockstep" since it "gets every partner
pulling in the same direction," while an Addleshaw Goddard partner
cautioned against a system that is "too merit-based:  You
have to make sure the firm still behaves as a partnership and
that work is allocated to the right people."

As evidence of the stresses and strains inherent to the territory
comes word that
Lovells, which just last November rejected proposals for a "bonus
pool" above and beyond the lockstep base, is now re-examining
that stance following the departure of some high-profile stars
including private equity head Marco Compagnoni to Weil-Gotshal
in February.   But resistance is keen:

"One partner told Legal Week: “There is not much
appetite for it — there is a lot of concern about changing the
culture of the firm.” Another added: “We have a perfectly fine
culture and I hope we can preserve it.” "

Back in 2004 (I warned you this was not a new topic!), Legal
Week featured a longer discussion of
the pro’s and con’s of lockstep. My own belief, which I’ve
expressed earlier,
is that lockstep and EWYK are each better at different things, and your
firm’s selection of a position on the spectrum should depend on
what you’re trying to accomplish. This puts the point nicely:

"Colin
Ives, professional practices partner at Smith & Williamson, says
that, understandably, choosing a system of remuneration comes
down to culture. “If a firm is operating a pure lockstep, is
it the right culture for a firm?” he says. “It produces an
extremely collegiate team, but can it put the brakes on aggressively expanding
into new jurisdictions?”"

In other words, if you need to vigorously pound the pavement
for new work in a new city, the incentives may be weak for a
spear-carrier to lead the charge—knowing that for all
his risky efforts he’ll receive pretty much what he would have
had he kept the home fires burning.   From the same
piece, not inconsistently, appears one of the more succinct defenses of
lockstep (emphasis supplied):

"Cravath, like Slaughter and May, has a policy of
not making lateral hires. This in turn makes it easier for a
lockstep to function as all partners enter at the same level,
and everyone knows that each partner is in it for the long term.

"In fact, a handful of highly profitable, successful firms have
pure locksteps that go against the US ‘eat what you kill’ trend.
Cleary Gottlieb Steen & Hamilton, Davis Polk & Wardwell, Wachtell
Lipton Rosen & Katz,
as well as Cravath, all boast collegiate cultures that they are proud of.

"English firms, however, seem less keen to promote the lockstep
as a source of collegiality and equality, and more keen on tinkering
with it as a management tool. One of the most recent examples
of this is Ashurst, which has moved partners down the lockstep
in a bid to raise the performance bar after profits dropped.
Like fellow City firm Norton Rose, Ashurst was requested to
leave two gateways into the partner-ship; partners who meet
performance expectations at various stages can move up through
these gateways. Crucially, however, under-performing
partners can also move back down through these gateways."

Indeed, there is nothing more deadly than a "tolerant lockstep."

Also back in 2004, Asian Legal Business ran a piece recapping
the experience of various US, UK, and home-grown Asian firms
in balancing the tensions between lockstep and EWYK.  While
not providing any snappy comebacks to the implicit question,
"What’s best?," they at least pose the right questions: 

"While a single worldwide system offers simplicity,
it may also prove to be too rigid. The use of local or salaried
partnership status or even a so-called ‘super lockstep’ system
may fudge many of these issues, but this can have profound implications
for the culture of the firm worldwide.

"While there is much debate
over the respective merits of lockstep or a merit-based approach,
there is consensus among lawyers over what issues need to be
addressed by a firm’s remuneration system. Any system, they
say, needs to answer the following: does it motivate your best
performers to perform; does it encourage partners to develop
existing clients and to locate new ones; does it encourage partners
to involve other partners outside their group or office; does
it encourage the right behaviour in the firm to partners and
all staff; does it enable you to keep partners in areas of significance
to the firm which may be inherently less profitable than the
rest of the firm; does it facilitate lateral hires; do partners
think it fair; and, how much management time does it take to
run?"

I would actually condense this (helpful) laundry list to the following:

• Does your compensation system reflect where your firm is
  in its lifecycle, and what its key strategic challenges are?  And,
  of surpassing importance:
• Do partners think it fair?

The answer to the second question is one only you and the executive
committee can answer.

For the answer to the first, take a look at this, which I am
confessedly reprising.  And good luck.