A law firm's compensation system should promote and reward performance and contribution to the long-term value of the firm. 

In many firms, however, compensation actually undermines performance.  An inadequate compensation system can also be a major factor in a firm's inability to recruit and retain the lawyers and other professionals that it needs.

Which compensation system is the best?

All of them and none of them...

Every compensation model -- even the much maligned "lockstep" and "eat what you kill" systems --  can work very well.  Every compensation model can also fail miserably. This is why each Walker Clark professional compensation system is custom-designed for each firm.

There are no “preferred models” in partner compensation.  Each firm’s rules, procedures, and structures for distributing profits to partners should be a unique reflection of the partnership's goals and business values, as well as the financial characteristics of the firm’s business.  Regardless of the model that a firm selects, the partners need a way to reward extraordinary performance and to manage underperformance.

Five basic questions

The Walker Clark approach focuses on five basic issues that every professional services firm must consider in designing and operating a compensation system for its professionals.  We start by investigating two critical, but often overlooked, questions:

1.  What behaviors do we want to promote and reward?

Walker Clark never sells an "off the shelf" model or package.  Instead, we invest time with our clients to identify and define the actions, behaviors, and forms of economic contribution that are most important to each firm's long-term business success.

2.  Are there any significant differences among departments or practice areas in terms of the economic factors that drive financial performance?

Not all practice areas function the same way.  There can be profound differences in profitability management and business development between a high-volume practice and one that consists of a smaller number of long-term, complex engagements.  A compensation system -- especially one with a strong performance-based component -- should take these differences into account in a way that convinces each partner that the system is fair.

We then develop a proposed compensation system and a set of options.  In some cases, all that is required are minor adjustments to the firm's existing program.  Sometimes, however, the firm's compensation system requires a complete overhaul.  Before the firm launches its new system, we help the firm to conduct a thorough, intellectually rigorous exploration of the new system, centering on two more critical questions:

3.  Will it work?

We develop an interactive working model of the proposed system, which will allow the partners to see and consider the real-world financial results it will produce for the firm and for each lawyer.  Our working model also allows the partners to use and manipulate options and variables in order to see how each one will affect actual compensation.

We also help the firm to evaluate the extent to which the proposed compensation system will actually promote and reward business behaviors -- such as fee generation, marketing, and profitable management of matters -- that are most important to the long-term business success and professional culture of the firm. 

We take a holistic approach to the question Will it work?  Even small law firms are complex business organizations.  Therefore, we also look for related areas that will require attention if the compensation system is to deliver its full benefits to the firm.  For example, if a compensation system rewards the lawyer who brings new clients to the firm, does the firm need to improve the marketing and sales skills necessary for successful client development?  If the system reward successful achievement of individual performance objectives, are those goals clear, measurable, and realistic?

4.  Is it fair?

Ultimately, this is the most important consideration of all.  To be successful, a compensation system must be perceived as fair.  We facilitate the partners' discussion of this important, and frequently sensitive, issue.   This usually takes place at a partners' meeting facilitated by one or more members of our team.

A compensation system that is fair can continue to motivate, encourage, and reward dedication to the firm even through the worst of financial times.  One that is unfair will open the door to partner departures even at the slightest financial downturn.

A Walker Clark compensation project does not end at this point.  Instead, we work with the firm to answer a fifth question:

5.  What further adjustments do we need?

No new compensation system works perfectly from the start.  As a law firm gains experience with the new system, it soon notices a number of possible minor adjustments and improvements. Many firms just ignore these little glitches or possible refinements.  "The consultants have gone home, and we don't have the time to bother with this any more."

This is why Walker Clark compensation project includes a follow-up review approximately six months after the new system is put into operation.  We will review your progress with the new system, identify further improvements, and help you to accomplish them.

How can Walker Clark help your firm?

We will assign a multidisciplinary team -- not just one consultant -- to work with your firm.  Our team typically includes a lawyer, an economist, and a psychologist, each of whom is experienced in compensation issues in law firms. Review and redesign of a compensation system usually takes four to eight weeks.  We charge a fixed fee, which includes all expenses, usually in the range of $9,000 to $18,000, depending on the size of the firm and the complexity of the firm's current compensation system.  Most firms can recover this amount in less than six months, in terms of improved financial performance and business results.

Ask your partners.

Are some of your partners less than completely satisfied with your current compensation system for partners, associates, and other professionals in your firm?  Are there issues about compensation that are so sensitive that you and your partners have avoided them? Do you want to get better business performance from partners and associates?

If you think that your answer to these questions might be yes, we can help.  For more information, please contact Norman Clark at 1.239.466.8370 or by e-mail to nkclark@walkerclark.com.