A fairer way to distribute profits

A fairer way to distribute profits

The way that you remunerate people in the workplace has a huge influence over their motivation and behaviour, both positive and negative. There is no better place to observe this dynamic than among the equity partners in a large law firm.

Lockstep

Historically, such partnerships operated on a lockstep remuneration system. New partners were admitted at the bottom of the equity and over the years they moved up the equity ladder in preordained steps dependent on the length of time served as a partner. Within a certain period, usually less than 10 years, a partner would reach a ‘plateau’ and would be at the top of the earning scale.

At each step of the remuneration system, partners would qualify for points with the plateau partners having the most points. At the end of the financial year, the amount of profit to be distributed to partners would be calculated and allocated pro rata to partners based on their points.

Such a system, where remuneration is dependent on seniority, only works if everyone pulls their weight and shares in the tasks expected from a partner which include winning work, completing this work, and managing the practice and its resources. Senior partners are expected to nurture the junior partners by showing them the ropes, facilitating useful contacts, and handing on client relationships. In a truly collegiate partnership where this happened, lockstep proved to be an effective remuneration system.

However, in those firms where senior partners were tempted to coast towards retirement and ease their foot off the gas leaving the junior partners to carry most of the burden, friction and resentment quickly built up among the less well-paid lower ranks. Also, as some firms, particularly the US entrants to the UK market, were using merit-based or ‘eat what you kill’ remuneration systems, younger star-performing partners were tempted to pastures

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About the author:

Kevin Wheeler has been advising professional services firms on all aspects of marketing and business development for nearly 30 years. As a consultant he helps firms to manage and grow their key clients as well as to win new ones. As a certified coach with WABC he works with partners and those approaching partnership to improve their BD skills.