ESCAPING THE MAZE BY USING A FACILITATOR TO DETERMINE PARTNER COMPENSATION

By Robert James Henderson ©

Introduction:

While intuitively it may be assumed that the process of allocating income between law partners is too sensitive to be delegated to an outsider and that broad and direct knowledge of the firm is necessary for this function, it is those two factors, sensitivity and extraneous information, which most strongly call for the entrustment of the process to an independent facilitator.

Minor changes in a partner’s allocation, particularly relative to others with whom he compares himself, can lead to a great deal of concern, even though the dollars involved may not be significant. If the adjustment has been made by a person whose only basis for judgment is information which is relevant to criteria acknowledged to be valid by consensus of the partners, an aggrieved partner must look to the criteria or to his own performance for an explanation.

Use of an outside facilitator places all partners on the same footing relative to the compensation process. Dissatisfaction can be directly confronted and constructively channeled toward discussion of the partner’s contributions or the need for refinement of the allocation criteria. It becomes less likely that serious compensation disappointment will be revealed only when a partner announces his or her departure for a firm whose grass appears greener.

Qualifications and Role of Facilitator:

The facilitator must have personal experience in the process and sensitivity to the problems of income allocation in a law firm. His or her role must be limited to eliciting and analyzing data relevant to the firm’s criteria for income allocation and to preparing an allocation schedule which demonstrably reflects those criteria. The partner interviews must he carefully conducted so that each partner comes away from the interview confident that his or her contributions have been understood, and also with an appreciation of the areas in which a greater contribution might reasonably have been expected.

The Process:

1. The firm, by whatever means is used to develop consensus positions on important partnership matters, confirms or updates a statement of the criteria which are appropriate for consideration in fixing the income allocation for the coming year.

2. Data bearing on the quantifiable criteria are compiled from the firm’s accounting records.

3. By responding to a questionnaire, each partner describes that person’s performance during the past year relative to each of the criteria. The managing partner or committee reviews the completed questionnaires and appends comments to rectify any puffing or self-effacement.

4. The management committee sets the allocation for any partners whose compensation is determined by factors other than the generally applicable criteria. For example, newly admitted partners whose allocations may be strongly influenced by their last years’ salaries as associates.

5. The facilitator, having carefully reviewed the questionnaires and accounting data, meets with each partner for a structured comparison of his contributions with the criteria. Each of the facilitator’s comments is related to a criterion and all strengths and weaknesses are noted.

6. The facilitator prepares an allocation schedule for the following year. The extent, if any, of further consideration or approval by firm management or the partnership at large is a matter for each firm’s determination. However, the benefits of insulation from the process are diminished to the extent the schedule is subject to change by the firm’s leadership after being submitted by the facilitator.

RELATIONSHIP TO BONUS PLAN

Many firms supplement their prospective income allocation with a retrospective bonus system which rewards a partner’s specific contribution or performance during the past year which is “above and beyond” that anticipated by his income allocation for that year. If the timing of the bonus determination coincides with the income allocation for the next year and, particularly, if the same persons make both determinations, it is difficult to keep one determination from affecting the other, in appearance if not in fact. If the firm leadership makes the retrospective bonus awards while the facilitator determines or recommends the prospective income allocation, the independence and validity of the bonus system will be preserved. Also, the bonus system can thus more effectively serve as an escape valve for unhappiness with the past year’s income allocation.

CONCLUSION

The subjective method for income allocation permits a firm to identify, encourage and reward the full range of needed partner contributions. By using an independent facilitator, the negative aspects of implementation of this method can he ameliorated.