BUSINESS
CAREERS
Compensation
Continued From Page 23
to the firm are typically harder to
account for, frequently leading open
compensation models toward a
metrics-based formula—resulting
in only those contributions that can
be readily quantified as being
rewarded under the system.
Open compensation models
may also be subject to much
greater internal criticism, particu-
larly where a partner feels their
contributions are not properly
rewarded by the firm. Critics of
open compensation models fre-
quently point to the amount of
time lost by partners who seek to
appeal, challenge, or alter the com-
pensation grid to more properly
reflect what they feel is the correct
valuation of their contribution.
Closed compensation: Get it right
so we can focus on everything else
By contrast, closed compensa-
tion models are where partners
in a firm do not know how much
the others earn. While partners
generally have a sense of how
compensation is determined,
they will not be party to the out-
come by which individual com-
pensation is arrived at.
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more likely to challenge peer decisions, particularly on such delicate
matters as compensation. For
many, closed compensation models thus eliminate what is viewed
as the single most contentious
issue between partners at a law
firm, thereby fostering a more
trusting work environment.
Closed compensation models
also have the advantage of being
able to more accurately reward star
performance, as interpersonal and
political considerations are less
likely to directly influence compensation outcomes at the firm. Specifically, supporters of closed compensation models point to their
ability to more readily reward rising stars in the firm, as perception
issues and compensation comparisons are less likely to occur in a
blinded model.
Critics of closed compensation
models frequently cite the fact that
few businesses would entertain the
notion of a group of owners not
knowing exactly how profits are
being divided. They argue the
model concentrates power in the
hands of the few, and a lack of
transparency creates the potential
for favouritism and/or errors in
application of the agreed upon
compensation model.
“The key to successful
closed compensation
models is... a high
degree of trust within
the firm; not only
across all partners...
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The key to successful closed
compensation models is trust. To
be successful, there must be a high
degree of trust within the firm; not
only across all partners, but particularly in those tasked with
evaluating and determining appropriate compensation levels for
individual partners.
In the end, the vast majority of
law firms operate under an open
compensation system, owing to the
more intuitive, straight forward
solution it provides to compensation issues. Interestingly, however,
few firms, once making the transition to a closed compensation
model, revert back, which may be
the most telling feature of all. n
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LexisNexis and the Knowledge Burst logo are registered trademarks of Reed Elsevier Properties Inc., used under licence. Other products or services may be trademarks, registered trademarks or service marks of their respective
companies. © 2011 LexisNexis Canada Inc. All rights reserved.
Warren Smith is a managing
director with The Counsel Network, a lawyer recruitment
firm. He is also the only Canadian elected to the board of directors of the National Association of Legal Search Consultants
(NALSC), a legal recruitment
industry association.
