You know, the question I am always asked is, “How do you know when it’s time to change a partner compensation plan?” And it’s interesting because I will hear from different partners at the same firm. Some think it works great, some are OK with it, and some think it’s time to make a change. Well, you can tell where they are in the pecking order of how the money is being allocated.
I believe the number one reason you change a partner compensation plan is it no longer takes advantage of the skill sets of the partners and doesn’t produce the kind of profitability that the firm is capable of. So the simple answer would be when there is a better way to improve profitability. Because if you think about it, all the partner compensation system is, is a tracking and measuring tool but hopefully a motivator to reward the right behavior. So in a highly formulaic firm, where you are talking about high chargeable time, guess what, partners hoard work; they end up doing work beneath them, they don’t give it to the right people because they are trying to push their billable hours.
In a firm where you are trying to get realization to raise, well, what happens often times is partners will say to the staff managers, “You need to hit this number. Figure out how to get it done.” You know what’s that code for? Don’t put time on the time sheet because we can’t bill the client for it. You are going to have to put it in extra hours. For every formula that’s out there, there is a way to trick or beat the system.
So you know it’s time to make a change when you look at the talent of the partners and the staff and you look at the income that they’re all making, and you say there’s too much talent to only be delivering this. We have to figure out a better way to do it. No different than a professional sports team sometimes in terms of the different parts of the team and how they have to work together.