While there is no hard and fast rule, compensation arrangements for business partners often fall into one of 7 common strategic classifications. They are:
- Equal Partnership
2. Lock-Step
3. Modified Hale and Dorr
4. Simple Unit
5. 50/50 Subjective-Objective
6. Team Building
7. Eat What You Kill
We will briefly discuss the second strategy, known as the Lock-Step system.
The lock-step system is used by a fair number of firms that are organized in a traditional fashion. The basic concept is that each partner is rewarded an ever-increasing share of the firm’s profits, based solely on seniority. The longer a partner remains with a firm, the more money the partner will make.
In a lock-step system, income can be divided exactly along seniority lines or, as with the equality compensation system, divided into levels. For example, the divisions might be senior partners (more than 15 years as a partner), middle partners (5 to 15 years as a partner) and junior partners (1 to 5 years as a partner).
Strengths: The greatest financial rewards in a lock-step compensation system go to those partners who have stayed with the firm for the longest time as a reward for their years of service to the firm. This obviously gives the firm, and probably the management of the firm, a great deal of stability. Few partners, once committed to a Lock Step system, would leave before they had risen to the top of the compensation totem pole.
The lock-step encourages external competition rather than internal competition among partners because the only way to increase individual incomes is by making the overall pie bigger. With no divisive compensation meetings and no internal compensation competition to deal with, many of the partners will expend their energies trying to make the total profit bigger so that everyone makes more money. There is no financial advantage to file or client hoarding among the partners so they tend to work well together, again contributing to the collegial atmosphere.
Weaknesses: The Lock-Step method does not directly reward individual contributions and initiatives. As a result, some partners will not expend extra effort when they know that all they need do is contribute at a normal rate to keep progressing along the compensation path.
In many firms with a lock-step system, the younger partners feel a great deal of resentment toward the senior partners. Often the attitude of these younger partners is, what have you done for us lately? Too often they see senior partners who have slowed down but still command the largest share of firm profits.
