Partners’ Compensation ¿Why is it so important?

It is often said that good strategy, leadership and culture are the key ingredients of a successful firm, but also the hardest to get right. However, if you ask partners across Latinamerica what is the most challenging organizational issue for law firms, many -if not most- will answer that the compensation structure -or “the formula”, as many like to call it- is the single most important matter to resolve in a firm.
This order of priorities would be unheard in other industries, but for lawyers finding the right “formula” for compensation is like the search for the “holy grial” that, if found, will solve all your problems and permit a peaceful and bright future for everybody. ¿Why is that?

The Professional Crossroads
In his excellent book “The Gods of Management”, Charles Handy describes different types of culture in organizations using the analogy of the Greek gods (Athenea, Zeus, Apollo and Dionysus). Dionysus is the culture of existentialism and it is prefered by professionals because, unlike the other types, the organization works for the individual and not the other way around. To me, this describes with great clarity the essential dilemma of professionals working in professional service firms, and specially lawyers: ¿what is more important, the individual or the organization?

And this probably explains why compensation receives so much attention from partners and it is so difficult to get it right. In the compensation discussion the partnership –and each partner individually- is trying to give an answer to that difficult question. Normally, partners do not realize that and deal with the problem as a technical matter, where finding the right balance is a proof of how intelligent the firm is. But rarely do they understand the full consequences of the analysis and the decisions that are taken. But the truth is that the compensation system tells how each firm has answered that question and responded to the dilemma.

About Compensation and Strategy
Lawyers intuitively live professional practice from an individual perspective. That is the way they were taught in law school and how the legal systems are structured. However, as the world becomes more complex, it is evident that an important portion of legal practice need to be handled by groups of lawyers organized in law firms and, increasingly so, those professionals need to work and collaborate for common purposes and objectives. Individuals need to give away part of their autonomy and self-interst for the benefit of the firm, and the clients.
It is striking how many partners in Latam firms understand that the eat-what-you-kill system goes against the interest of the firm and the clients, but still are unable to reach a consensus among them to get out of that trap. The Dionysus temptation to have the firm working for you –and not the contrary- is too strong to let it go, and many –specially founders- are willing to let the firm die or drift away before abandoning that “ego drug”.

There is much discussion going on about whether the “lock-step” system is good or bad, and what is the best “hybrid formula” to reap from its benefits and avoid its problems. But let me alert that searching for a perfect hybrid system could just be another Dionysus negotiation which will, much likely, end up in individuals wining the battle against the firm -and the clients-, at least in the short term.

The way to escape this trap is to avoid considering the compensation system as a negotiation among partners, for power, money and glory. Compensation is a tool that should help the firm achieve its objetives within an agreed strategy. That means that strategy should be agreed first, looking at the interests of the firm and the clients. Compensation should be a subordinated product of that exercise, and not the other way.

Autonomy and individual interests will always be part of a professional life, but until firms find their way into convincing their partners that they need to put those interests in favor of the firm´s objectives, law firms will have a hard time in adapting and transforming to the growing challenges of the legal profession.It is often said that good strategy, leadership and culture are the key ingredients of a successful firm, but also the hardest to get right. However, if you ask partners across Latinamerica what is the most challenging organizational issue for law firms, many -if not most- will answer that the compensation structure -or “the formula”, as many like to call it- is the single most important matter to resolve in a firm.
This order of priorities would be unheard in other industries, but for lawyers finding the right “formula” for compensation is like the search for the “holy grial” that, if found, will solve all your problems and permit a peaceful and bright future for everybody. ¿Why is that?

The Professional Crossroads
In his excellent book “The Gods of Management”, Charles Handy describes different types of culture in organizations using the analogy of the Greek gods (Athenea, Zeus, Apollo and Dionysus). Dionysus is the culture of existentialism and it is prefered by professionals because, unlike the other types, the organization works for the individual and not the other way around. To me, this describes with great clarity the essential dilemma of professionals working in professional service firms, and specially lawyers: ¿what is more important, the individual or the organization?

And this probably explains why compensation receives so much attention from partners and it is so difficult to get it right. In the compensation discussion the partnership –and each partner individually- is trying to give an answer to that difficult question. Normally, partners do not realize that and deal with the problem as a technical matter, where finding the right balance is a proof of how intelligent the firm is. But rarely do they understand the full consequences of the analysis and the decisions that are taken. But the truth is that the compensation system tells how each firm has answered that question and responded to the dilemma.

About Compensation and Strategy
Lawyers intuitively live professional practice from an individual perspective. That is the way they were taught in law school and how the legal systems are structured. However, as the world becomes more complex, it is evident that an important portion of legal practice need to be handled by groups of lawyers organized in law firms and, increasingly so, those professionals need to work and collaborate for common purposes and objectives. Individuals need to give away part of their autonomy and self-interst for the benefit of the firm, and the clients.
It is striking how many partners in Latam firms understand that the eat-what-you-kill system goes against the interest of the firm and the clients, but still are unable to reach a consensus among them to get out of that trap. The Dionysus temptation to have the firm working for you –and not the contrary- is too strong to let it go, and many –specially founders- are willing to let the firm die or drift away before abandoning that “ego drug”.

There is much discussion going on about whether the “lock-step” system is good or bad, and what is the best “hybrid formula” to reap from its benefits and avoid its problems. But let me alert that searching for a perfect hybrid system could just be another Dionysus negotiation which will, much likely, end up in individuals wining the battle against the firm -and the clients-, at least in the short term.

The way to escape this trap is to avoid considering the compensation system as a negotiation among partners, for power, money and glory. Compensation is a tool that should help the firm achieve its objetives within an agreed strategy. That means that strategy should be agreed first, looking at the interests of the firm and the clients. Compensation should be a subordinated product of that exercise, and not the other way.

Autonomy and individual interests will always be part of a professional life, but until firms find their way into convincing their partners that they need to put those interests in favor of the firm´s objectives, law firms will have a hard time in adapting and transforming to the growing challenges of the legal profession.It is often said that good strategy, leadership and culture are the key ingredients of a successful firm, but also the hardest to get right. However, if you ask partners across Latinamerica what is the most challenging organizational issue for law firms, many -if not most- will answer that the compensation structure -or “the formula”, as many like to call it- is the single most important matter to resolve in a firm.
This order of priorities would be unheard in other industries, but for lawyers finding the right “formula” for compensation is like the search for the “holy grial” that, if found, will solve all your problems and permit a peaceful and bright future for everybody. ¿Why is that?

The Professional Crossroads
In his excellent book “The Gods of Management”, Charles Handy describes different types of culture in organizations using the analogy of the Greek gods (Athenea, Zeus, Apollo and Dionysus). Dionysus is the culture of existentialism and it is prefered by professionals because, unlike the other types, the organization works for the individual and not the other way around. To me, this describes with great clarity the essential dilemma of professionals working in professional service firms, and specially lawyers: ¿what is more important, the individual or the organization?

And this probably explains why compensation receives so much attention from partners and it is so difficult to get it right. In the compensation discussion the partnership –and each partner individually- is trying to give an answer to that difficult question. Normally, partners do not realize that and deal with the problem as a technical matter, where finding the right balance is a proof of how intelligent the firm is. But rarely do they understand the full consequences of the analysis and the decisions that are taken. But the truth is that the compensation system tells how each firm has answered that question and responded to the dilemma.

About Compensation and Strategy
Lawyers intuitively live professional practice from an individual perspective. That is the way they were taught in law school and how the legal systems are structured. However, as the world becomes more complex, it is evident that an important portion of legal practice need to be handled by groups of lawyers organized in law firms and, increasingly so, those professionals need to work and collaborate for common purposes and objectives. Individuals need to give away part of their autonomy and self-interst for the benefit of the firm, and the clients.
It is striking how many partners in Latam firms understand that the eat-what-you-kill system goes against the interest of the firm and the clients, but still are unable to reach a consensus among them to get out of that trap. The Dionysus temptation to have the firm working for you –and not the contrary- is too strong to let it go, and many –specially founders- are willing to let the firm die or drift away before abandoning that “ego drug”.

There is much discussion going on about whether the “lock-step” system is good or bad, and what is the best “hybrid formula” to reap from its benefits and avoid its problems. But let me alert that searching for a perfect hybrid system could just be another Dionysus negotiation which will, much likely, end up in individuals wining the battle against the firm -and the clients-, at least in the short term.

The way to escape this trap is to avoid considering the compensation system as a negotiation among partners, for power, money and glory. Compensation is a tool that should help the firm achieve its objetives within an agreed strategy. That means that strategy should be agreed first, looking at the interests of the firm and the clients. Compensation should be a subordinated product of that exercise, and not the other way.

Autonomy and individual interests will always be part of a professional life, but until firms find their way into convincing their partners that they need to put those interests in favor of the firm´s objectives, law firms will have a hard time in adapting and transforming to the growing challenges of the legal profession.