Lockstep vs. Eat What You Kill: The Perennial Disequilibrium

Of all the "evergreen" topics we keep coming back to here at "Adam Smith, Esq." one of the ever-greenest (no pun...) is the eternal disequilibrium between lockstep and eat-what-you-kill partner compensation models.   Most recently, I addressed it here. 

The tension, in a nutshell, is to find a way to encourage the laudable—but very different!—behavior patterns each rewards while safeguarding against the (again, different) antisocial repercussions that both can lead to.   More specifically:

Latest to weigh in on this, decisively against lockstep, is the FT.   While recognizing that "[l]ockstep has its advantages," and that "a lockstep firm's lawyers are more likely to work seamlessly. They will be less tempted to structure deals to reward one set of specialists or the partners of one office," they neverthless opine flatly:  "global law firms can no longer afford that luxury."

What's the problem?  Retaining talent:

"A gap has opened between profits per equity partner [of UK firms] and those of top New York firms such as Wachtell Lipton Rosen & Katz and Sullivan & Cromwell.  Figures from The Lawyer magazine show US firms taking nine of the 10 top places on this measure this year, with only Slaughter & May sneaking in beside them. That allows New York firms to poach lawyers in the world's financial centres: even in London, the City firms are losing partners."

"The City ought not to stick to lockstep like the band that played on as the Titanic sunk: quaint, selfless and admirable, but doomed."

Now, as they say in debate class, would anyone care to argue the negative?  Sure!

The FT article is premised on the assumption that compensation is the primary, if not the only, consideration partners attend to when choosing allegiance to a firm.   Perhaps surprisingly, given my faith in homo economicus, I beg to differ.

First, the inevitable caveat:  Magic Circle and Bulge Bracket partners have bills to pay along with the rest of us, and the new BMW, diamond bauble, or ski weekend are always beckoning.  And certainly the opportunity to double or even triple one's take-home is something neither you nor your spouse will be willing to ignore.   As well paid as many are, demand can always outrun supply.

That said, there is genuine intangible value in a sense of collegiality in the workplace, in team-building, in delivering top-notch client service untainted by self-interest, in contributing to an institution—"The Firm"—over an extended period of one's career, and not least in avoiding the infighting, neck-biting, and generally deplorable "Lord of the Flies" behavior associated with arguing over such nasty details as origination credits. 

Moreover, my experience has long been that if a partner (or an associate, for that matter) leaves for another firm, it's never for that 15-20% pay bump; it's always really about something else.  (The pay increment is an OK reason, and it may be the "public" reason, but it's rarely the decisive reason.)  

I continue, until the facts change, to come down in the camp of "modified lockstep," with due recognition for superstars, but  not outsized recognition.  At the late and largely unlamented Finley-Kumble (which collapsed in a cash crisis Christmas Eve 1987, unable to pay holiday bonuses), the ratio of highest to lowest paid partner was 17:1.  As Fran Musselman, the eminent senior partner at Milbank who became trustee of the estate in bankruptcy of Finley-Kumble, put it:  "There is no way on earth that those two people were partners."

So I recommend strongly against unalloyed eat-what-you-kill; the partnership you save could be your own.