Brief essays on law firm partner compensation and related subjects are to be found here. Short descriptions follow with links to downloadable pdf copies.
Size Matters Not Much
Do partners gain income from growth in a law firm large enough to make the ALM 200? Answer: On average, they do not. Among already-large firms, firm size and per-partner profit are unrelated.
Understanding the Lateral Hiring Frenzy
First published, March 18, 2016, AdamSmithEsq.com
Why is lateral hiring proceeding at a frenetic pace even though legal employment is far below its 2007 peak? Is lateral hiring at this pace a destabilizing force in the law industry or a sensible, productive feature of the legal labor market? And is it transitory or will it last? To know the answers requires stepping back to understand the economics of the market for lawyers.
Diplomacy and the Partner Pay Conversation
First published, July 8, 2013, AdamSmithEsq.com
Experience teaches that a big partners’ meeting is the wrong setting for starting the discussion about revising a firm’s partner pay program. Individual or small-group conversation is the way to begin the process. The big meeting best comes at the end. Once the process is underway, there is a useful lesson to be learned from the history of diplomacy among nations.
Externalities and Partner Pay
First published June 7, 2013, AdamSmithEsq.com
Should the contributions that a partner makes to other partners’ success and firm-wide well-being be taken into account in pay determination? Economics teaches that efficiency improves when external effects such as these are internalized.But for some, partnership implies not trying to account for such benefits. A firm’s culture will dictate how to handle these contributions but ignoring them entirely is not a sensible option.
The Prisoner’s Dilemma and Partner Pay
First published May 28, 2013, AdamSmithEsq.com
Game theorists, biologists and social scientists have long used the Prisoner’s Dilemma game as a model for understanding cooperation and non-cooperation. What are the lessons for thinking about the implicit choice that all law firms make between shared fate partner pay arrangements and those that emphasize individual accomplishment?
Strategy and Partner Pay
First published May 18, 2013, AdamSmithEsq.com
The most fundamental strategic problem that all law firms face comes in two parts. First, growth—even modest growth—requires investment and investment reduces the current income of incumbent partners. But second, partners who can bring in work will be offered market compensation plus a premium for jumping ship so dissatisfaction with current income can lead to defections. This problem cannot be made to go away but communication is an important way to lessen its impact.
In Defense of the Billable Hour
First published May 3, 2013, AdamSmithEsq.com
Pundits who bemoan the persistence of hourly billing fail to appreciate the full extent of the implicit understanding between a law firm and its clients and fail to recognize the efficiency of pricing based on inputs when the output is hard to define.