How reward systems drive partner contribution

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December 2024

I was delighted to contribute a chapter to Managing Partner Performance: Strategies for Transforming Underperforming Partners published by Globe Law and Business, edited by Nick Jarrett-Kerr and Jonathan Middleburg.

You can purchase your copy here.

Here are 5 key takeaways on shaping effective partner compensation systems that help leaders drive partner contribution:

1. The partner compensation system is a tool, yet it doesn't self-execute without leadership.

In professional services firms, managing partner contribution is both an art and a science. To get the best out of your partners, the ability of the firm's leaders to inspire meaningful, long-term contributions is paramount. A well-designed partner compensation system is one of the most critical tools for aligning partners with a firm’s strategic goals. Yet partner compensation is only a tool: it supports the dialogue firm leaders must have with their partners, yet it cannot replace the dialogue.

2. Shift your thinking from “Performance Management” to “Contribution Management".

Equity partners aren’t employees—they’re co-entrepreneurs. The best firms emphasize contribution management, fostering collaboration and commitment to shared success. This approach aligns individual goals with the firm’s strategic and operational goals, motivating partners to deliver beyond financial results.

3. Your firm's partner compensation archetype drives the type of partner contribution conversation you will have.

Partner compensation systems are built around 7 profit-sharing archetypes. Each archetype reflects a firm’s cultural preferences and strategic priorities.  

Any of the archetypes can foster productive contribution discussions with a partner. Yet the influence you have and the subject-matter of the discussion with each partner about how they help you drive the business is fundamentally different depending on the profit-sharing archetype your firm operates.

4. Value-based meritocracies and managed locksteps strike the best balance rewarding individual and collective success.

Compensation systems must find the sweet spot between rewarding individual performance and collective achievements. Today's most successful and profitable firms are fundamentally meritocratic. They emphasize individual financial accountability yet also reward holistic contributions that promote collaboration and innovation.

Managed locksteps and value-based meritocracies excel here, recognizing the unique impact each partner can make to the firm's strategic, operational and financial goals.

Formula-based systems have the advantage that they self-adjust profit-shares based on financial inputs, yet often they are too individualistic and struggle fostering cohesion.

Only the fewest tenure locksteps - and "performance improvement plans" address "free-riding" effectively.

5. How well you execute on five factors will drive the success of your merit system.

The most successful merit systems align their partners around a simple partner contribution framework, foster a culture of accountability, align partner-level KPIs to firm-wide measures and are committed to a strong partner contribution management process that inputs into the work of a well-resourced partner compensation committee. 

Sound complicated?

It is. The best equity partners are ambitious people who love building businesses.  They don't like being told what to do. The most difficult partner contribution discussions often are with the best partners. 

Yet many firms make it more complicated than it needs to be.  Use your partner contribution framework as an anchor.  Use technology (such as Performance Leader) to help you have engaging conversations. Prepare your Partner Compensation Committee's dataset in a sensible way, without overloading your committee with minutiae. Commit to the development of your Partner Compensation Committee members (such as with our RemCom Fundamentals online offering) so that they can make the best reward decision possible and don't waste time in endless committee meetings.

How does your profit-sharing architecture help you drive partner contribution?