If we had to choose a single word to define success in the configuration of a partnership, that word would be cohesion. The constant—and very human—tension between individual interests and the collective interests of the partners (the firm) means that this cohesion must be managed continuously.
Every business seeks access to capital markets. In the case of law firms, this access refers to their ability to maintain a cohesive and attractive partnership—one capable of incorporating new partners over time.
The particularities of professional services firms make their management more complex and demanding than that of other types of organizations. Their main asset is intangible (experience, knowledge, reputation). The service they deliver is also intangible (an opinion or a legal representation), and their value proposition depends on highly qualified human capital—ambitious and attractive to competitors. Therefore, having a compensation system aligned with the firm’s strategy, with partners’ interests, and designed to protect the firm’s assets, is the key ingredient for a successful partnership.
When seeking to execute the firm’s strategy and achieve the desired market positioning, there are two critical areas for maintaining partnership cohesion: (i) the sustainability of the model, and (ii) the firm’s profitability, while at the same time adequately rewarding partners’ contributions across all dimensions—legal and business generation, team management, and their role as firm owners.
How can a firm properly compensate partners when their contributions are both objective and subjective? This is the challenge faced by every law firm in the world, regardless of size or geography: the design of a partner compensation system.
Broadly speaking, compensation systems consider two main variables: first, the balance between rewarding individual versus collective efforts; and second, the time horizon of those rewards—whether partners are compensated for past contributions that have an impact in the present and future, or exclusively for their current performance.
There are several market trends that constantly threaten compensation systems—and the more extreme the model (toward individualism or collectivism), the greater the risk:
- Greater partner mobility between firms. It is now common to read in the legal press how one firm has recruited a partner from another. The “partner career” is no longer seen as confined to a single firm; it now spans multiple organizations.
- The entry of international firms. In the past, local markets tended to follow similar practices. The arrival of firms from other jurisdictions changes the rules of the game, introducing models that may better suit certain professionals.
- Multiple generations coexisting within partnerships, each with very different needs and motivations.
How can all these challenges be addressed? By understanding that a firm’s partner compensation system is one of the key instruments available to execute its strategy.
- There are no universal models. A partnership is a unique group of people; its compensation system must be equally unique.
- It must connect multiple generations of partners.
- It must align partner and professional interests—ensuring consistency with the firm’s associate compensation and career development systems.
- It must be dynamic, as partners’ motivations and circumstances evolve over time.
A law firm’s strategy gains importance as markets mature, firms cross borders, and competition intensifies. The partner compensation system is, therefore, a strategic tool.
Whenever a firm adjusts its strategy—whether to strengthen its positioning, respond to new competitors, or enter new sectors—it should also review, even if only to confirm, its partner compensation system. And it must do so with the utmost care: there is no deeper cultural shift within a firm than the alteration of its compensation model.
Antonio Gómez Montoya – Partner at Black Swan Consultoría