Defining the Job
In smaller firms, often with 25 lawyers or less, the managing partner's responsibilities are principally administrative in nature, i.e. providing guidance to the accounting department and resolving issues between partners. While there can be some reduction in billable time, the duties are often carried out by increasing the amount of non-billable time for a few years. The effect is that the managing partner's total compensation is the same as if he or she did not have the responsibility for the position. The remaining partners are unlikely to sacrifice a share of their normal incomes to pay the managing partner.
Medium-sized firms will almost always have a good non-legal administrative team in place to look after the financial, technology, human resources and other facilities. However, marketing, planning and other developmental components of the portfolio will remain with the managing partner, or be managed by committee. Still, this leaves the managing partner more time to deal with practice groups and practice group leaders within the firm. Most medium-sized firms are very concerned about their positioning in their local and regional markets.
The competitive environment is changing quickly for most firms of this size, and so managing partners either respond to merger initiatives or launch them of their own accord. Every medium-sized firm (those that remain) in Vancouver, Calgary, Edmonton, Toronto, Ottawa and Montréal has to reconsider its future every 8 to 12 months. Each worries about MDPs and Donahue Ernst & Young LLP. Each is concerned about losing premier partners and about not recruiting and retaining enough associates and students.
The 50 largest firms populating Canada's legal services landscape have issues of their own. There are a few which have yet to decide whether, or how, they will open, or significantly grow, an office in Vancouver, Calgary, Toronto, or Montréal. No national firm yet has a presence in Atlantic Canada, in Chicago, or in Silicon Valley. Every firm wants to grow its stable of IP and technology lawyers. The largest firms ask their practice group leaders to deal with recruitment and retention issues. The other parts of the "administrative" portfolio, including marketing and strategic planning, are managed by the managing director/legal administrator in at least half of the 50 firms. This allows the managing partner to spend time on big picture questions: the competition, the firm's top 10 clients, and the firm's top 10 partners. Most of the managing partners in the country's 50 largest firms are billing 25 per cent of their usual load. Much more billable time than this greatly compromises their effectiveness on the big issues.
Performance Management
Managing partners will often chair, or at least be a member of, the firm's compensation committee. Smaller firms expect that the managing partner will oversee administration and ensure peace, order and good government within the firm. Most will not earmark part of the firm's profits for such "duties", although they may assign a share equal to a maximum number of non-billable hours or permit the managing partner to drop to a lower level of non-billable hours without being penalized by the firm's compensation system. Rarely do smaller firms assign specific projects, targets or goals to the managing partner and then tie compensation to these.
Medium-sized firms will tend to have formalized strategic plans. But much of the managing partner's focus is on helping the firm with questions of specialization, growth, and talent management. These are full-time assignments, but they are also ongoing processes and not expressed in formal, quantifiable terms. Few medium and smaller-sized firms set out the terms by which the managing partner's performance will be evaluated. The aversion to formal peer review systems in law firms extends to the appraisal of the managing partner's contribution.
There is evidence that the situation is different in some of Canada's largest law firms. The priorities of the managing partner are better defined, as are the expected results and a process by which at least some of the partners are consulted about the managing partner's achievements and effectiveness. The more progressive managing partners insist on such "feedback" as a way to maintain the commitment of the partnership for the managing partner's priorities, and as an expression of the normal accountability that managing partners have to their partners. A few firms want to attract and retain very specific individuals in the role of managing partner. One size does not fit all. For these firms, the stakes are too high to take any other approach. Law firms billing $50 million, $100 million or $150 million each year usually have the leadership talent necessary within the firm and must link the managing partner's total compensation to the results he or she delivers.
Performance Pay
The principles of variable pay have long been applied to partner compensation systems in firms of all sizes. The amount of time billed, of business originated, or the amount of non-billable time are variables. Yet, the same principles are not being extended to compensation for managing partners. Senior lawyers, not all of them General Counsel in Canadian corporations, are able to obtain more than 50 per cent of their base pay based on results. Compensation for the managing partner of a law firm could be structured as follows:
. base equal to 75 per cent of their own average compensation for the three years before they became managing partner; plus
. 30 per cent of the base pay if the average income per partner equals that of the previous year, 50 per cent of the base pay if the average is 10 per cent more than the previous year, 70 per cent of the base pay if the average income per partner is 20 per cent (or more) higher than the previous year; plus
. 50 per cent of the base pay earmarked for success in at least three significant and pre-planned initiatives such as recruitment of a number of lateral partners, cutting associate turnover by 50 per cent, merging the firm or opening a new office, contributing directly to the firm's success in winning new work from prestige clients, and placing those clients in the firm's top 10.
This architecture for a managing partner's performance pay is tied to the firm's economic success, and depends only partially on the capabilities and leadership of the individual. Selecting the initiatives carefully is paramount, while getting the basics right-every time-is a prerequisite to growth in base pay. Successful managing partners should be able to receive at least twenty-five per cent more compensation than if they did not take on the job.
Richard G. Stock, M.A., FCIS, C.Adm., CMC is a partner with Catalyst Consulting. Catalyst Consulting has been designated the Preferred Supplier for Legal Services Consulting by both the CBA and the Canadian Corporate Counsel Association.