Partner remuneration is one of the most conflict-generating issues in a law firm. Of course, because the earnings received by these professionals say a lot about what the firm values, it affects their sense of self-worth and power, and creates a sense of justice (or lack of it) among all those who work in the firm. Paradoxically, in many of the firms we know, this issue is treated superficially. The senior partners take the models they’ve seen in other firms as a basis, make minor adjustments and make it official. “Those who want it, want it, those who don’t want it should leave,” said the head of a law firm we advised. The problem, in this case, was that the remuneration model led to some well-paid and motivated professionals, many earning very little and being complacent, and many others dissatisfied and looking for better opportunities in the market. Is this also the case at your firm? If so, how do you solve it? It’s not easy to build an optimal partner remuneration model. But with a few correct principles, a consistent methodology and a good relationship of trust between the members of the firm, it is possible to avoid most of the disagreements that usually permeate this issue. At the same time, in many discussions between partners, remuneration seems to be the main topic of contention, when it is only the pretext for the fight. They don’t trust each other and would fight about anything else. Let’s start with the principles. Our experience shows that a good shareholder remuneration model must respect at least the following four maxims:

1. reflect what is most important for banking today and in the next 3 or 5 years;
2. be simple and with variables that can be controlled;
3. be built up in wide-ranging discussions with the firm’s main partners;
4. Clearly establish a deadline for review (3 to 5 years).

It seems obvious to say that the remuneration model should reflect what is important to the firm, but it doesn’t. The temptation to take a ready-made or “market” model can lead to mistakes. The temptation to take a ready-made or “market” model can lead to mistakes. What is essential is that the partners discuss in the firm’s strategic planning what will be critical for growth in the coming years, isolate these variables and use them to define the remuneration model. For example, at a large law firm we work for, after intense debate it was concluded that the partners had to pursue two objectives: to increase the number of new clients and to improve the profit margins of the areas. With this in mind, the partner remuneration model focused on these two variables, keeping fixed earnings relatively low and intensifying each partner’s earnings as they reached the sector’s client acquisition and profitability targets. In this case, it is easy to see how the choice of these two variables simplified the model. After all, both the amount of revenue raised and the profitability of the areas were already measured. They just weren’t given the strategic importance that they came to have when they were linked to each partner’s earnings. Another aspect that is often poorly resolved in the construction of the partner remuneration model concerns the way they conceive it. It’s not uncommon for the founder of a law firm to talk to some friends, meet with his financial manager, juggle a series of numbers and come up with an earnings formula. Then he calls a meeting where he presents it to everyone and says triumphantly: we had a great meeting. Everyone enjoyed it. Of course, that’s not true. Most people didn’t feel comfortable expressing what they thought about the model during the meeting. They will then try to understand it in private conversations with other professionals or, what’s worse, they will talk badly about it (even though they didn’t understand it!), killing one of the main objectives of a remuneration model: to encourage people to behave in a way that is compatible with the company’s long-term objectives. When we create a partner remuneration model, we do it together with people and not for them. You have to discuss what you expect from the system, the most important variables for the firm, the rules that will guide it, etc. This takes time, some say. That’s true. But there is a basic rule in administration: “those who don’t participate don’t commit”. And this participation creates a sense of trust in the model and a strong commitment to the firm’s growth project, which is essential for motivating everyone. Finally, even the best-designed remuneration models don’t last forever. On the contrary, they have to be modified from time to time, just as the firm’s objectives and characteristics change. It follows that younger firms or those that grow quickly tend to set a shorter timeframe for reviewing the model. Something like two or three years. On the other hand, a firm that has been in the market for a long time and has a stable presence can perhaps afford to review it every five years.

Whenever these revisions are made, the ritual is repeated: everyone involved discusses what is important for the firm, the variables that should guide the model and, based on this, the rules for the partners’ earnings are revised. By doing this, what we see is that the partners come to have an increasingly clear understanding of what is important for the firm and an increasingly solid trust in everyone who makes it up. Conflicts between leaders are greatly reduced.