By David Kuhlman and Mark Masson
Partner compensation in professional service firms is a topic of perpetual debate – one without an easy answer. Typically, the topics are base pay levels, bonuses, mechanics of distributing the pool of funds, and how it connects to what each Partner has done for the Firm. Firm leaders set about fixing the issues Partners raise in these debates only to find out that the level of noise about compensation doesn’t go down for very long. The problem is that Partner compensation is not really about the absolute dollars and cents.
Recent studies demonstrate that high-performing lawyers, auditors and consultants have a deep need to be self-directed, become ever more capable at their chosen craft and have a compelling purpose as to what all of their work and sacrifice will lead.
Daniel Pink describes this in Drive: The Surprising Truth about What Motivates Us. He artfully presents findings of such studies in an interesting video: http://www.youtube.com/watch?v=u6XAPnuFjJc
Spoiler alert: If you don’t have time to watch the entire 10-minute video (it’s actually worth watching), here are two main messages: Cash rewards work well for tasks that simply require rudimentary cognitive skills, but beyond that, cash rewards don’t work that well. Second, the things that truly motivate people are Autonomy, Mastery, and Purpose.
Having worked with many professional services firms to address Partner compensation over the years, our experience supports these findings. We believe Partner compensation programs are best suited to:
- Signal progress and mastery. Mastery and progress are key elements of a professional’s life. It takes an incredibly long time to become simply good and even longer to become great. The way we compensate Partners should give them a sense of progress and reinforcement on that journey.
- Signal what’s important (and what isn’t). A Partner compensation program is first and foremost a communications tool. It should reward what’s important and discourage what’s out of bounds. Rewarding the highest quality client service, for example, can orient Partners toward standards of high quality. Conversely, firm leadership can counter the corrosive effect of the idea that “enough revenues forgive all sins.” A Partner compensation program can send a clear message that bigger isn’t best if quality suffers.
- Let people know where they stand. Most professionals have a deep need to know where they stand, both relative to the Firm and relative to their peers within the Firm. Think about how often “fairness” comes up in discussions about Partner compensation. They want a sense that the results of the firm’s collective efforts are being divided fairly. Each firm defines fairness (i.e., signaling what’s important) so each firm’s compensation approach will operate a little differently.
- Celebrate the extraordinary. A Partner’s career is a long journey, with plenty of ups and downs. Recognizing extraordinary achievements along the way helps make that journey more satisfying and sends powerful signals about the value of going above and beyond. Simply being excellent, as you expect of everyone, is hard enough. The moments that rise above even that high standard should be celebrated, not to motivate Partners, but to treasure the achievement. Of course, it’s critical to do this in a way that celebrates truly distinguished achievement and not a broad range of accomplishments. What was the line from The Incredibles? “…and when everyone is super…no one is.”
- Maximize each individual’s exit price to the extent possible at any given time. Every firm is in competition for the best talent and this is most true at the Partner level where professionals are reasonably complete and self-sustaining. We don’t believe people stay or leave for money except in the rarest of circumstances. Affiliation, shared values and natural inertia mean Partners will tend to stay put as long as pay is “close enough.” Put another way, the “exit price” of acquiring high-performing talent usually requires paying a premium. When it comes to retention, pay doesn’t need to bid the market because the market will always pay a premium over a high performer’s real value. Pay needs to be close enough to the market’s bid price at any given time to let the other, powerful forces come into play. Too far off the mark, and you become vulnerable to poaching.
What Partner compensation practices have strengthened your firm?