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Salaried partnership – make it GOOD, not BAD or UGLY

Posted in Leadership, Legal Profession, Management, Partners

Salaried partners as a proportion of total partners in law firms are on the increase. However, there are good, bad and not such good things about many implementations of the salaried partnership regime in firms. It makes real sense to ensure that your salaried partner structure is working in the best way possible. This means putting it together well and managing it well with constant reviews and stress-testing along the way.

This increased use of salaried partners was one of the clear findings of the 2012 Edge International compensation system survey of leading firms in the US, Canada, UK, Europe and Australia. This is a world-wide trend and is a reversal of the position of only a few years back when it seemed the appointment of salaried partners was on the decline.

Putting together an optimal salaried or fixed share partnership regime can be one of the wisest moves that law firm leadership ever undertakes – it can result in countless benefits – providing for succession and the long term health of the firm, a happy and hugely productive group of salaried partners and properly managed, very profitable and satisfactory for the equity partner group. (Sean Larkan 2012)

I wrote an article on this subject in the ALMJ (Australian Law Management Journal) which is available for download as a PDF.  A precis of some of the key points follows:

I am a strong believer in appointing salaried partners and believe that properly structured and managed this structure and system has the potential for many benefits for all concerned. To name a few:

  1. it is a good way to show appreciation and recognition;
  2. it is a good testing ground before equity partnership;
  3. it is a confidence builder;
  4. salaried partners have the opportunity to find their feet and understand the partner culture;
  5. it provides status;
  6. it can be an ideal alternative to equity partnership for some;
  7. it is ideal for some who may never meet the criteria for equity;
  8. it can help out with tough decisions where realistically it may be “impossible” to appoint equity partners;
  9. it can provide a realistic buffer to poaching firms; and
  10. sometimes it is a counter to lawyers leaving for greener pastures.
Having said this, I have consulted to a number of firms where we came to the view that the salaried partner system within the firms had either not been implemented properly or was not being managed satisfactorily. The result was that the salaried partner group was so disenchanted and it had, quite unintentionally for all concerned, become the enemy within the camp.
This situation can arise when:
  1. salaried partnership is used simply as a blockage to equity;
  2. salaried partnership is used to “park” under-performing partners;
  3. they are not treated with respect or provided with opportunities in regard to communication, consultation, listening, sharing of information, access to clients and so on;
  4. salaried partners are partners in name only or as glorified employees (it is not unusual to hear equity partners call them just this);
  5. they come to be viewed as nothing but a “necessary evil” (believe it or not this does happen!);
  6. salaried partners have not had conveyed to them the true nature of the regime in the firm;

Some outcomes of this are:

  1. the firm and its equity partners are missing out on a golden opportunity;
  2. the salaried partner group are effectively learning “bad values”which they will carry through with them into equity partnership if they make the grade;
  3. salaried partners become marginalised within the firm;
  4. they become an isolated, disgruntled group and serious veins of mistrust develop;
  5. there is a negative impact on a firm’s employment brand in relation to both partners and staff.

It is quite possible to turn the salaried partner regime into a very positive, successful part of the firm’s make-up. Here are a few suggestions:

  1. don’t take it for granted as simply part of the firm’s partnership structure – it is strategic and needs careful and thoughtful consideration;
  2. be honest and frank about what you are using your salaried partner regimes for, whatever those reasons may be;
  3. if an aspiring partner has no realistic chance of becoming an equity partner tell them up-front;
  4. if you are serious about turning the salaried partner regime into a strong fee–producing and marketing component of the firm, treat them as partners in every sense;
  5. treat them with respect – as if they truly are your future leaders and owners – consult them, communicate with them, listen to them;
  6. progress them a year too early rather than a year too late;
  7. make it clear that notwithstanding their non–equity status they are expected to conduct themselves and perform like partners in every respect.

Take steps such as these and you will be rewarded in spades and have a happier partner group overall. It goes further – any firm that does not deal with this vital element of its structure will simply not compete with others that do. It is that important.

Sean Larkan, Partner, Edge International