A regular reader (partner at an AmLaw 25 firm and, coincidentally,
a fellow Princetonian) writes:
"You write about
lockstep and eat-what-you-kill, but you don’t say a word about “completely
black box” compensation. There are some firms in which partners
are told neither how much their colleagues are being paid nor
the precise basis for their own pay."Is that a clever way to avoid jealousies in a law firm with
offices in many cities that must necessarily pay differential
wages in different locations? Or, in the alternative, is it
insanity? Or something in between?"
Our reader does indeed cite a fascinating case which falls
under neither model I discussed (although my suspicion is that
it’s not as rare as one might think, so it does bear
discussion).
Having been trained as a securities lawyer, where
Disclosure is God, I used to think that you could never have
too much transparency and that the model our reader cites is
indeed "insanity." (A non-lawyer friend
once asked me if I could summarize the securities laws in 25
words or less—this was, blessedly, before Sarbanes-Oxley,
a revolting, pestilential abomination grafted like a tertiary-stage
malignancy onto the Delphic wording and structure of the ’33
and ’34 Acts—and my response was that the securities laws
required only this: "You
can do anything, so long as you properly disclose it.")
But the more I see of
how people actually behave, the more inclined I am to the view
that a little opacity isn’t such a bad thing, and that in fact
the Total Ignorance position is internally consistent and probably
has some merit.
Why?
Essentially, the more widely dispersed the firm (geographically,
and "virtually," as
in having a multitude of practice areas), the more difficult it is to make
meaningful comparisons between what lawyers in different cities in different
countries doing different kinds of law "should" or "deserve" to
earn. Let’s face it; Bologna is never going to be as lucrative as NYC,
London, or Hong Kong, nor is real estate transactional work ever going
to be as rich as project finance or private equity.
This in turn means that unless the firm imposes a Procrustean
and extremely unstable across-the-board uniformity, disparities
in the profitability of work done will be more or less reflected
in disparities in the compensation of those doing the work.
Don’t we all know that, and aren’t we all adults? What
would be so bad about conceding, and even enumerating the extent
to which, that’s the case? The problem is the all-too-human
one which Warren Buffett has fingered: "The only one of
the seven deadly sins more powerful than greed is envy."
In other words, it’s
difficult to have your nose rubbed in the fact that you’re
not at the top of the remuneration pecking-order—no matter
how well-paid you are in absolute terms.
Accordingly, I’m coming around to the view that it’s defensible,
even smart.
But there’s another dimension entirely: We’ve been discussing
compensation schemes as if they were the only way to get people
to behave in desirable ways, when of course nothing could be
further from the truth, as David Maister nicely points out in
a comment he left on my original piece:
"What lawyers continue to misunderstand is that reward
schemes do a good job of making sure that rewards go the right
people, but are close-to-irrelevant in *creating* performance.
Too many law firm debates are about different ways to pay people
of different “inherent characteristics” (the superstar, the
mobile lateral, the developer of people) as if their contribution
is unchangeable, their personalities and their preferences being
fixed."What this debate ignores is the possibility of getting
people to adapt their behaviors through guiding, supporting,
helping, coaching, cajoling, inspiring, confronting and a multitude
of other highly interpersonal activities called MANAGING people.
It is because law firms don’t want to do this that they fall
back on trying to do the impossible: trying to influence behavior
through the reward system, which, since it will, and must inevitably,
remain a blunt, unsophisticated instrument, will always be
inadequate to the task. The issue for law firms is NOT what
kind of reward system shall we have: it’s are we prepared to
see this place managed in any other way besides through the
reward system? Is there another way to get people to do things
other than to say “Do it and I’ll pay you!”
Characteristically, David is absolutely right. We
all know we do things for a million different reasons
other than money, including boosting our self-esteem,
seeking peer recognition, wanting to be a team
player, for the pursuit of intellectual curiosity,
enhancing our professional reputation, impressing
a client, etc., ad infinitum.
But I’m also reading "Eat
What You Kill: The Fall of a Wall Street Lawyer,"
Milton Regan’s gripping, harrowing, better-than-any-novel,
painstaking reconstruction of how John Gellene, a
rising-star bankruptcy partner at Milbank in the
mid-1990’s (racking up 3,100 and 3,000-hour years
consistently), a Phi Beta Kappa and summa cum laude
graduate of Georgetown and cum laude graduate of
Harvard Law, neglected to disclose what should have
been an easy-to-overcome conflict of
interest to the US Bankruptcy Court and ended up
in prison, a convicted felon.
While Regan has only begun to make this inexplicable
personal and professional blow-up understandable,
it’s clear that contributing mightily to the pressures
Gellene felt subject to was Milbank’s transformation
in the late 1980’s from the quintessential lockstep-compensation,
WASP white-shoe firm joined at the hip to the Rockefeller
family and Chase Bank, to a firm of entrepreneurs
bent on growth and diversification.
This transformation may have been—indeed,
I would be among the first to suggest it probably
was—one of Milbank’s finest hours, but change
has consequences, and, occasionally, tragically
exposes a personality type incapable of adapting
to the transition.
But back to lockstep vs. EWYK vs. the black box:
The bottom line for me is that compensation
across the partnership over time must be perceived
as fair. People will push and jostle and beef
about this that and the other small adjustment,
but ask them if it’s fundamentally fair in the long
run: If that acid test can be passed,
the system works.
