Knowledge Management and Law Firm Compensation
Law firm knowledge management professionals frequently discuss the impact of partner compensation systems on the interest in and ability of a firm to invest in KM. The general consensus is that firms with “lock step” partner compensation are better able to support significant KM initiatives than are firms with “eat what you kill” compensation. “Lock step” means that partner compensation depends only on partner seniority, not on new business nor on hours billed. In contrast, “eat what you kill” means compensation depends on new business generated and hours billed. Of course, many firms have a blend of the two models.
KM professionals have three good reasons for thinking that lock step systems support KM:
(1) Lock step firms tend to view clients on more of an institutional than individual lawyer basis. On balance, this makes the firm more willing to invest generally.
(2) Partners compensated based on their tenure do not need to worry on a daily basis about business generation or hours billed. On the margin therefore, partners are more willing to invest their time – or have associates invest their time – in contributing know-how to a central system.
(3) Firms with lock step systems tend to be more collegial and therefore more open to KM.
The link between compensation and interest/investment in KM has not been empirically proven to my knowledge. That said, there is some pretty good evidence. In particular, the large London-based firms, which tend to have lock step compensation systems, have invested significantly more in KM than have most US firms, which tend not to have pure lock step systems. Furthermore, a few of the US firms with lock step systems (or at least leaning heavily in that direction) are the ones that tend to invest more in KM.
So, it is with interest that I read an item on law.com today that suggests pressures may be developing against UK firms maintaining their primarily lock step systems. In Clifford Chance Loses Four Partners to Weil Gotshal, the New York Law Journal reports that Clifford Chance has just lost four top antitrust partners to Weil Gotshal. The departing partners say that compensation was not a factor – the problem was conflicts. Nonetheless, these departures come “at a time when the British firm [Clifford Chance] is conducting a review aimed at determining whether or not it should bend its traditional lockstep compensation scheme.”
Of course, many in the legal profession will watch the large UK firms and their compensation systems for a variety of reasons. KM professionals should especially keep an eye on this issue with particular emphasis on the impact on KM initiatives.
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