LAST WORD: The Ruthless Split
Lexpert, March 2008
Ah, it’s that time of year again. The days are getting longer, the nights shorter, the smell of spring is in the air—no, wait, that’d be the smell of another March blizzard—and every lawyer’s thoughts turn to… compensation. ‘Tis the time of year most major law firms agonize over the infamous “split” and determine just how much of the firm’s profit pie each partner is going to get.
In most law firms, the atmosphere during this period is so tense, you could cut it with dental floss. And it doesn’t matter if the firm operates under a closed compensation system—that’s the kind in which you don’t know how much your dearest colleagues are getting—or an open. It’s tense and it’s stressful. And it’s not even really about the money. I mean, really, at a certain level, what’s another five or 10 thousand, or even 25 thousand? Not even the downpayment on a new Lexus or BMW.
What the split is about, of course, is putting a pretty precise, numerical and hierarchical value on a partner’s contribution to the firm. Are you a 1… or a 0.75? Maybe a 1.15? Or—gasp!—a 0.68? 0.43? 0.432467345?
I jest and exaggerate of course. No firm (that I know of) splits its point with quite that much detail. But however many ranges, brackets, or decimal demarcations they use, what each law firm does do is rank its partners in a hierarchical order that, in open compensation systems, is known to every partner in the firm (and trickles down to associates and staff… somewhat distorted), and, in closed compensation systems, is known to the people who set the compensation (and trickles downeven though it’s not supposed to, to partners, associates, and staff… greatly distorted).
Determining this financial ranking and valuing of partners is an awful job. I’ve never yet met a member of a compensation committee who relished his job. I’ve met a bunch who embarked on their first term of this exercise full of vim and vinegar and a conviction that they could bring perspective, clarity and sanity to the process… and then seen them at the end of the process with circles under their eyes, new wrinkles, and the occasional ulcer.
It’s a thankless job. If you do it badly, some partners will hate you, and if you do it well, some partners will hate you. It doesn’t matter if you are more fair than Solomon, if you are lenient or wield the power like a punishing hammer, using the process as a club with which to whack an underperforming partner (or one who has made a mess of his personal life—it happens)… it doesn’t matter what, as a member of the compensation committee, you do. At the end of the process, someone’s nose will be out of joint.
(Note to headhunters and recruiters everywhere—the best time to call the gal your client would just love to lure over but suspects of excessive loyalty to her existing shop? It’s right after the split. Odds are good, she’s at least mildly dissatisfied.)
The closed compensation system is intended to clamp down on some of this stress. In some places—under some managements—it works. In other places—or with certain people, regardless of which firm they’re with—it doesn’t. Setting compensation once every two years is another attempt to address this stress, sending it partners’ way once every 24 months instead of the usual 12. But let’s face it—there is absolutely no way of eliminating it. Once lockstep compensation died and law firms embraced meritorious compensation that rewarded outstanding performance—and punished underperformance—they also ensured that at least once a year, their firms would become breeding grounds of internal envy, rivalry, discord and sometimes, outright malice.
In a nutshell: it ain’t pretty. And it ain’t pretty regardless of how hard the conscientious individuals involved try to make the process fair, reasonable, humane and respectful.
So my unsolicited advice to compensation committees everywhere is this: take off the flippin’ gloves. They’re gonna bitch and whine and hate you. Fine. Take that for granted. And give Henry 0.33 of a point and a drop of some $150,000 because he’s a jerk who doesn’t respect his assistant or his colleagues, and has awful taste in ties to boot. Give Shannon 1.1, which is beyond the realm of her expectations and out of the ballpark of what any of what her “age mates” are getting, because she’s already that good and she’s going to be running the firm in a couple of years—and thus setting your compensation. Start that relationship off on a good note, why not? Drop Tim down to precisely the bottom where his “dial in” performance over the last few years tells you he belongs and don’t sweeten it any. Why bother? He’ll hate you just as much if you drop him just a little bit. Boost Fred cause he’s fun at parties, and drop Karla because she’s not—and you kind of want her to quit, because the librarians really hate her.
It could almost be fun… Almost. Except, of course, these are people’s lives and livelihoods you’re playing with, and it’s damn hard to be ruthless in such a situation.
Even for an experienced, big firm lawyer.
Marzena Czarnecka is a freelance writer loosely based in Calgary. She avoids unnecessary conversations with lawyers during “the split.”