Should managing partners be compensated for their service? Answering this question seems easy enough. In reality, though, the answer is much more complex. Even more difficult is determining how to fairly compensate deserving managing partners. A related challenge involves whether management committee members should be compensated for their contributions.
To answer these questions, it is helpful to consider the most common small-mid managing partner archetypes or scenarios. Consider if any of the following are relatable:
- No one else can do it as well as me.
- I have the most business, so it is only natural that I have the most influence.
- For one reason or another, most of the management tasks fall to me, so I might as well have the title.
- I would rather practice law, but my partners want me to run the firm.
- My partners want me to manage the firm, and I like doing it.
- My partners appreciate my management talent, but not to the detriment of my practice.
- Managing partners are elected and serve for a term.
- I don’t want to practice law; I like to manage.
Choosing a managing partner in a small-mid firm is typically about risk (skin in the game), commitment, ability to lead, managerial competence, track record, and client control. As firms get larger, however, the power structure is usually more diffuse, and electing a managing partner is a political process or becomes more committee-oriented.
Paying a managing partner also depends on a firm’s compensation system. Objective systems that rely heavily on timekeeper and origination performance measures will need a feature that allocates compensation for non-client related contributions.
Subjective and equity ownership based compensation systems tend to use a rough justice approach to rewarding managing partner service. For example, if a managing partner also owns the most equity in the firm, the implied bargain, although not always true, is that he or she that benefits the most from their efforts and no additional compensation is necessary. In most cases, ownership points are not taken from a managing partner while in that role, so it is arguable that they are indemnified from the short term negative impacts of their service.
Firms that use base salaries as part of their compensation scheme tend to consider managing partner service when setting the base. Finally, many firms do not compensate managing partners and view it as either a duty, a coveted position, or simply don’t consider management contributions in their compensation formula.
In our view, it is fair to compensate managing partners for their contributions that benefit all partners and for managing partners to hold themselves accountable for delivering results.
Measuring Managing Partner Performance
Managing partners don’t typically enjoy the level of power afforded to a CEO in a corporation. For the most part, managing partners derive their power from the size of their client base and or, as a client of ours likes to point out, “by consent of the governed”. Law firm managing partners have a different type of accountability. The burden law firm managing partners’ carry is often underappreciated and undervalued.
Authority and accountability will vary with a firm’s management approach, but the areas of responsibility of a typical managing partner may include the following:
Accounting and Taxes
Banking and Finance
Facilities and Office Services
Major Purchase Management
Legal Compliance and Risk Management
Cost Control and Profitability
Recruiting and Lateral Hiring
Branch Office Management and Development
Typical Compensation Plans
Fully compensating managing partners is harder for small and mid-sized firms who often rely on the managing partner’s economic contributions to sustain profitability. Which should come first?: Improved performance followed by incentives? Or incentives first to create improved performance? This question is a common stumbling block for many firms.
Making this decision and designing a compensation plan that fairly compensates for firm management and leadership is best accomplished using a structured process.
To help your firm get started, download a very helpful infographic to review a few suggested approaches that can help:
Compensating Managing Partners at Law Firms
Source: HR.com Articles