November 28th, 2007 by Jim Cotterman
A recent Law.com article, Reed Smith Holds Back Partner Pay for Legacy Firm’s Nonequity Rank, illustrates the use of compensation as a tool to direct behavior and performance. As indicated in the article there are mixed views as to whether this is the right and proper approach. Answering that question solely from the context of an article is nearly impossible since we do not know what else the firm is doing to ensure compliance with billing and collection policies. So our comments here are not directed toward that particular firm referenced in the article.
However, we can say that using compensation as the lead element to direct performance is probably not the best approach. Rewards and punishments (the carrot and the stick) both may secure temporary compliance but often with resentment at the manipulation. There is an excellent article by Harvard Business Review by Alfie Kohn, Why Incentive Plans Cannot Work, that broadens our thinking about the role of compensation.
Those who do the job (broadly defined) well should be paid more than those who do not. In that context compensation is the recognition of differing contribution. That alignment is very important and was demonstrated as such by David Maister in Practice What You Preach. Compensation becomes the tangible expression by leadership of what they truly value. It is vitally important that what they say is valued ends up being what they valued with compensation. Also, that the pay differential is proportional to the performance differential.