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Subjective and Objective Compensation Systems

By Michael Short and Joseph Altonji

As we sift through the results from our recently published (yet still open to late-comers) Partner Compensation System Survey, the data draws us to consider a wide variety of questions about this vitally important management and leadership system. One critical question that deserves somewhat more detailed consideration is the basic structures of the systems used in the legal world today. While the majority of our survey respondents report using some form of subjective system, about 15% of the firms report that they use a purely formulaic/objective system.

From a theoretical or normative perspective, there is no “right” or “wrong” system. Each option has its strengths, weaknesses and applicability to any given firm's culture, leadership style, and the behaviors that the leaders want to incentivize and reward. Systems that will work well in one firm would fail abysmally in others, and we generally find that even many systems that look very much alike “on paper” are somewhat different in application.

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