One thing that has struck me recently is the importance that law firms place on compensation-related issues. For example, it’s not unusual for a firm to take its biggest rainmakers, put them on a compensation committee, and then expect them to spend upwards of 500 hours reviewing and evaluating compensation for equity partners. 500 hours. That’s just an incredible investment in time. Also, how many other industries have what is basically a compensation metric as the key indicator of success? Of course I’m talking about profits per equity partner and as much as people say they don’t look at it, everyone pretty much does.
So there are probably lots of reasons why compensation is so salient in law firms, but I’m starting to think that one reason is because it’s filling a status void. Conventional wisdom says that lawyers are rather obsessed with status – whether it be credentials, constantly seeking highest quality work, etc. And yet, beyond some conventional distinctions in firms (lawyer vs. non-lawyer, partner vs. associate), law firms seem relucant to provide other means of distinguishing people and signalling good work or good performance among people of a similar status. Perhaps the most obvious is feedback: law firms are notorious for not providing detailed performance feedback, particularly at the partner level. But there are other examples as well. People in a number of firms have told me that their firms would be relucant to identify “rising stars” in the associate or partner ranks. I’ve also heard of firms that have a real case of title proliferation when it comes to attorneys who aren’t in those traditional associate or partner roles. For example, they might have people called of counsel, senior counsel, and counsel without meaningful distinguishing the differences among those titles. Speaking of titles, when you look at the pool of non-equity or income partners, you often find a wide range of individuals from up-and-coming equity partners to de-equitized partners, further confusing anyone trying to understand the organization of human capital in the firm.
So in absence of other meaningful distinctions, perhaps equity partner compensation steps into the void to give partners the feedback that they, as normal human beings, crave? And because it’s not available anywhere else, it holds even more weight than it does in an organization that is providing other forms of distinction?
Just a thought.
I’ve been thinking a lot lately about the role of compensation in large law firms. Dewey’s downfall is certainly an obvious place to start. Surely those large compensation guarantees made to lateral partners played a signficant role in the firm’s financial instability. But there is also an overarching narrative in the profession at the moment that seems to suggest that BigLaw lawyers are driven solely by compensation. There are reasons for this, of course. The AmLaw rankings explicitly put compensation front and center in the form of publishing profits per partner figures. Some have also pointed to “investment banker” envy where the advisors to investment banks have observed the considerable pay gap between bankers and their own meager high six, low seven figure incomes. (But doesn’t just about anyone feel poor next to bankers?)
And yet, I remain skeptical. I’ve had too many lawyers tell me that they are paid far more than they ever thought they would be when they entered the profession. Research on compensation backs up the notion that compensation as an extrinsic motivator does a poor job of influencing hard work and commitment to an organization. Frederick Herzberg’s classic hygiene-motivation theory suggests that the benefits from compensation are quite limited when it comes to motivating employees. More recently, Daniel Pink’s fabulous book Drive explains how much more effective instrinsic motivation is. (If you’re not familiar with Pink and don’t have time to read his book, I highly recommend taking about 15 minutes to watch his TED talk - it’s captivating.) There is a vast literature on motivation that I won’t review here, but suffice it to say, social science is quite clear on the limits of compensation.
Moreover, lawyers, in particular, score very high on personality tests measuring love of learning, and scores for equity partners are particularly high on this trait, indicating that lawyers highly value intellectual endeavors and challenges. (For more information on this point, see my article in American Lawyer, co-authored with Larry Richard.) Lawyers are inately drawn to intellectual activity and learning, and yet firms are structured around compensastion as rewards and all but neglect other types of tools for motivating behavior.
So what gives? Why do lawyers say they make more money than they need and yet obsess about compensation every year? I believe it’s because compensation is a way to keep score in a profession where quality and outcomes are hard to measure and meaningful feedback is hard to come by. As one partner told me recently, “The only time I find out how I’m doing as a partner is when I get my memo from the compensation committee.” This seems like a problem that is entirely fixable.
There are other alternatives as well. In a recent blog article by Syliva Ann Hewlett, she suggests organizations consider flexible schedules as a way to motivate and retain good people. We see law firms experimenting with more flexible roles, for instance, but these roles rarely come with status and typically don’t receive professional development resources. These half-hearted attempts at accommodating other ways of working are unlikely to solve the retention and motivation issue.
There’s an opportunity for firms to experiment with other forms of motivating lawyers. Perhaps Dewey’s troubles will make leaders think twice before putting all their eggs in the compensation basket, but I have yet to see any meaningful moves in that direction.
Welcome to my blog – thanks for coming here.
I’ve lived for a number of years ago between the worlds of academia and the practice of the business of law. As one who doesn’t fit neatly into one category (professor and ivory tower researcher) or another (consultant or law firm administrator), I’m struck with how little communication there is between these two worlds. It is my goal with this blog to try and bridge this gap more explicitly by bringing empirical academic research (done mostly in business schools) and discussing the impact for the business of law.
I hope you enjoy it.