Compensation Systems
There are as many different compensation systems as there are law firms. What works in any particular firm is a system that fits the culture and personalities of the partners. That means that a good compensation system should be flexible and should be able to survive evolving needs of the firm as well as changing ownership. A system must be embraced by the partners and be consistent with their collective philosophy, background and perspective.
In our estimation, a good compensation system should also be based on strategic and business considerations. No firm can afford not to link compensation closely with strategy. To use an old adage – What gets rewarded gets done..
Despite their differences, all successful compensation systems feature two common qualities. These qualities are inextricably linked to each other, ideally forming a bond that stands the test of time.
First and foremost, a successful system must be fair and be perceived as fair by partners who are essential to the firm’s economic success and reputation. The perception of fairness is critical. Even a system that is fair in objective reality cannot survive if a substantial number of the key players perceive it to be unfair. Fairness is measured by a sense of equity in treatment with respect to others and by others. To determine the fairness of a compensation system, partners may want to ask themselves some important questions:
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Do I understand the system?
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Does the system recognize what individuals contribute to the organization?
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Are the rules clear?
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Are the rules followed and applied in a consistent manner from person to person and from year to year?
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Are the compensators individuals who are trusted and respected?
A second quality of successful compensation systems is that of simplicity. Experience has shown that there is a direct correlation between the simplicity of a compensation system and the degree to which partners understand how their compensation is determined. That, in turn, goes a long way toward the perception of fairness. Simplicity is the foundation. Each additional consideration or step in a compensation system should be measured against simplicity. When tinkering with a compensation system, one might ask – Are we truly gaining an insight into an individual’s contribution that is worth the additional complexity?
Comsense Consulting has in-depth experience with compensation reviews. These are delicate projects that require engaging each partner individually, while building consensus towards a system that is both fair and simple to understand and administer.
Comsense Consulting can help
With over twenty-five years experience in managing and consulting to law firms, we can offer you cost-effective, hands-on engagements that actually help make things happen.