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.