14 June 2013 By Northern Lights
Guest blog by Peter Smart, Yorkshire head of Managing Partners’ Forum
Well, our most recent breakfast meeting created some debate!
Benjamin Viney, researcher and author of BDO’s Partner Pay and Performance 2013, compared legal partners’ earnings over the last 30 years. The report examined today’s results in comparison to those found by David Maister, business management expert and former Harvard Business School professor, in a 1983 study.
He teased the audience by getting us to guess what would have changed over this period – and what had pretty much stayed the same.
First of all, let’s explain the research. Benjamin looked at the range of profit shares for eight ‘archetypes’ of lawyers, amusingly named
We all seemed to recognise these labels – though of course, never about ourselves!
What were the big surprises in the results, compared to those received by Maister in 1983? Well there are three main ones.
1. The range of pay has significantly narrowed
Benjamin’s research started with a baseline pay of ‘100’, which was the average partner’s profit share, and then looked at the range of pay to the other partner ‘archetypes’ compared to that 100, now and 30 years ago.
The range of pay is (on average) one third narrower than it was 30 years ago. Firms now spend much more time dealing with partner pay and performance issues, not least as greater partner mobility has forced firms to consider much more carefully the merits of different partners’ contribution to the firm. We also now live in an information age where it is relatively easy to obtain comparative pay data.
The biggest losers on median pay are the exec members and the rainmakers, while the unproductive older partners are paid less at the top end – once they used to earn the big bucks just on account of their age, experience and past achievements. No more.
2. How much more do rainmakers earn?
Rainmakers – those who bring in the big clients and the big fees – have always held a special place in law firms. Lawyers are not necessarily natural salespeople and when they find someone who brings in top billings, year after year, they have traditionally been extremely well rewarded.
So the question Benjamin put to our group was how much more do they earn than an average partner today, and how has this changed over 30 years?
There was a lot of confidence about this discussion. Definitely three times the average partner – some said that was too much but everyone agreed, a rainmaker would earn at least twice as much. And the view was that this figure would have increased over the 30 years – rainmakers are valued more now than ever, according to the median response from firms. However, the variance in responses from different firms is huge, with rainmakers earning just slightly more than average in some firms, while others are earning over 2.5 times the average.
The chart below shows the range of responses received for each partner, and compares the results received by Maister thirty years ago (burgundy lines), against those submitted to -Benjamin (grey lines). The numbers contained within show the median award.
3. The dynamics of law firms
The dynamics of law firms have changed a lot in the past thirty years. This is due to a number of factors
(1) Lateral hires
(2) The concept of one firm for life is no longer the norm
(3) Lawyers have much greater mobility between firms
(4) There are now higher all-round expectations for partner contributions
(5) And more recently, there have been increased pressures on firm profitability
Perhaps the biggest change has been lateral hires – bringing in associates and partners from other law firms. Once a lawyer did their articles and joined a law firm – and could realistically expect to see their career out in that same firm. Now lawyers are headhunted and move around, and that has changed the cultures and dynamics of many firms.
Lawyers generally are doing far more of everything. Although we have kept the same categories from 30 years ago, the reality is that the days of a technical lawyer being kept in a backroom are gone – they have to bring the work in like everyone else.
Lawyers are now expected to do things like writing blogs and articles, networking, developing younger associates, managing cash, managing the practice, and even managing Twitter and LinkedIn profiles. They are expected to do more of everything and overall everyone is paid more – firms are generally much more homogenous.
4. How much should firms pay nowadays?
This is the big question. Although profit share ranges have narrowed, there is still some uncertainty about what is appropriate remuneration for different types of partner contribution. I would say that firms should pay what whatever feels right for them, according to their personality, history and dynamics. Above all, pay is a cultural matter and attitudes will vary considerably from firm to firm. The legal landscape has changed, and pay also needs to reflect this.
The following table gives a more detailed picture of the performance of the eight partner archetypes on which the research is based. The numbers expressed as percentages of the average, with figures in excess of 100 showing superior performance to the average.
So does any of this surprise you? Would you expect rainmakers to be paid more relative to the average partner? And does it feel more equitable to have a better spread of pay throughout the firm? Or would some be more motivated with bigger pay differentials?