At this time every year, readers of The Lawyer look forward to comparing their firms’ financial results with those of their competitors. More than ever this year, comparisons between different firms’ results are made difficult by their different proportions of equity and non-equity partners. However, this issue isn’t about profitability alone, it’s also about how different firms have aligned their profit-sharing systems with the benefits they want to convey to their clients.
CMS Cameron McKenna has been quite widely reported as having moved from being a firm with a merit-based profit-sharing system to an all-equity partnership with a lockstep system. Why have we done so, and what are we aiming to achieve?
We want to improve our profitability, to enhance partner performance and to have a reward system that is aligned with our clients’ interests. But we think that what is important in creating the best firm we can is not our reward system per se, but whether or not we have an effective and functioning system that addresses partner performance issues on behalf of our clients. Therefore, we need to focus not on the criteria by which people are remunerated, but on whether or not our partner performance review system results in substantive, constructive feedback and guidance. Does each partner know why they have received the feedback they have, and what they should be doing about it?
If we still had a merit-based reward system, it would not necessarily mean that we were good at tackling performance issues. Indeed, the opposite may be true: the more we rely on rewards to deal with performance issues, the less effective our response to those issues is likely to be, since we might believe that we are dealing with them by simply adjusting pay.
This all sounds good and virtuous, but there is another aspect to it: in order to retain a lockstep system of remuneration, we need to be clear about our values and the mechanisms for enforcing them. And we need to be willing, collectively and individually, to be intolerant of underperformance. The constraints on operating a lockstep system are less to do with absolute profitability than they are to do with ensuring that the quality of partners (both existing ones and newly-appointed) within a firm is consistent and high. A tolerant lockstep system is disastrous.
In a lockstep system, all partners share the consequences of an individual’s performance being down. It is an essential part of lockstep that you are either a high-level performer (or are clearly on your way to becoming one) and are in the system, or you’re not, in which case it’s probably best if your career is pursued elsewhere unless a period of coaching has the desired result. This means that management of individual partner performance has to be very visible (and helpful) in order to justify partners of equal seniority receiving equal profit shares.
The lockstep system of remuneration is consistent with the notion that my firm (and any firm) offers and delivers to its clients the greatest value it can by achieving a high and consistent level of performance across the board. Lockstep achieves fantastic alignment between the interests of our clients and of our partners, because the collective contribution of our people working together is significantly more valuable and differentiating in the eyes of our clients than us going about our business separately.
Other firms obviously have views of their own. I wouldn’t suggest that our system is better than theirs: what’s right for each firm is a function of what it is used to and what it is trying to be and to achieve. But please let’s ensure that the debate is also about what’s best for clients.