Lockstep, modified-lockstep, lockstep with pay for performance, or
pure "eat what you kill?"
This is an issue which has not, to say the least, achieved
equilibrium. "Equilibrium" in economics means something akin
to what "climax phase" means in ecology: The status
towards which all disequilibrium states or transitional phases will
evolve, assuming no external shocks. For example, the "climax
phase" of the ecology of the Adirondacks is old-growth mixed deciduous
and evergreen forest. A forest fire would drastically alter that
ecology, but again, assuming no further external shocks (development,
acid rain), it would eventually return to old-growth forest.
That digression aside, my hypothesis for what the equilibrium state
of the partnership compensation model will be, is:
- Modified Lockstep
This is a very large topic, and a wonderfully dispassionate, broad,
and distinctly smart piece about
it is from Asian Legal Business. Among its points:
- UK-based firms have been relatively slow to embrace any non-lockstep
models, and their profitability per partner has suffered as a result. Indeed, ALB chalks
up the withdrawal of the noteworthy firm Denton Wilde Saptes from
Asia to this syndrome. - The UK/US philosophical-remuneration divide also, per ALB (and
several other equally or better-informed sources) scotched Ashurst’s
merger discussions first with Latham & Watkins and later, more notoriously,
with Fried-Frank. - Lockstep, when it works, can be a beautiful thing, eliminating
internal discord and focusing a firm outwards. - But/And, Lockstep, when it does not work, can be stifling to innovation,
can permit deadwood to survive, and can motivate high-performers
to jump ship.
So why do I predict "Modified Lockstep" will inherit the earth? Although
none of the extant partner-remuneration models is perfect (otherwise
every firm would have glommed on to that model), I think this is, all
things equal, the optimal model:
- Reasonable, but not distorting (a la CEO stock options) incentives
are maintained; - Firm-wide unity is essentially maintained;
- For international firms, flexibility across regions and profit-centers
is maintained; - Slackers are discouraged, and ultimately eliminated; and last,
and my favorite: - Firms that have adopted it seem to be increasing their global market
share at a convincing rate.
Q.E.D.? Not quite yet, but I hope to put together some
empirical evidence on this.
