Eat what you kill is not a silver bullet to make lockstep extinct
16th June, 2016
The quest to modernise law firms’ lockstep agreements has put them in the firing line, with some commentators even claiming they are in their death throes.
Some argue that the new generation of solicitors is looking for more flexibility in a merit-based system and that ‘eat what you kill’ will become the new normal as law firms modernise.
However, lockstep agreements have been evolving to offer merit-based rewards for some time and they remain a vital tool for structural and succession planning. They can be made more flexible. To scrap them altogether is considered by many a huge risk.
Some firms are favouring a more ‘eat what you kill’ mentality – rewarding those who bring the business in and giving the ‘millennial’ solicitors greater opportunity for reward.
This can yield short-term results, allowing firms to pitch aggressively for new business. Ultimately, however, firms are then reliant on individuals as there is no motivation to share expertise between partners. The system can be a catalyst for disputes over pay and it can have a negative impact on firms looking to provide multiple services. The lockstep system is based around the concept of collegiality and the acceptance that all teams have good and bad years and the partnership will smooth that out.
Crucially, eating what you kill works better for firms working in commercial law rather than those which also practise criminal law. The nature of criminal law cases and the current funding issues mean that an important part of business, and the specialists within it, can end up as the poor relations.
Lockstep requires a commitment from partners to the firm and the firm to the partners which translates into increased benefits for all. The security of a structured progression route and increased influence in return for loyalty and equity allows everyone to share in the success of the firm.
What is important is getting your lockstep agreement right. You have to decide over what period an individual will move up, how you plan to structure exit packages and – crucially – whether progress is automatic or based on achieving specific targets, financial or otherwise.
This is where lockstep has changed. Once it was a very set structure – progress was based upon time served and linked to equity put in. Some larger firms still employ this method.
Many firms are now exploring partial lockstep arrangements, building in performance targets that can accelerate or slow progress, dependent on achievement.
To do this they need a robust mechanism to value equity and a clear assessment structure to ensure it is clear who decides on progress or the application of a brake.
The advantage of these agreements is that those coming in at the ground level do not need to find a large cash equity contribution, as they can build it as they progress. This has to be balanced with the need for equity from new partners to pay equity back to retiring partners.
In large firms this is relatively easy to implement; however in smaller firms, with 10 partners or fewer, it can pose a real challenge as each partner has a larger slice of the business and will need to dilute it noticeably over time.
As a provider of progress within the partnership ladder, lockstep ensures there is always room for advancement, by speficying when and how a partner will leave the business.
In the past this has been seen as firms sacrificing lucrative consultancy experience; however this does not have to be the case. Often exit packages under lockstep agreements are staggered to prevent a large amount of cash suddenly being withdrawn from the pot.
These can be structured in order to allow a senior partner to continue to carry out profitable consultancy work for the firm’s clients and to ensure the business has a managed transition to replace the equity which is taken out over time.
Lockstep is still an important mechanism for law firms who want to offer guarantees about career progression and build a legacy for the future.
If you want to modernise your firm, you need to consider seriously whether lockstep has been a valuable mechanism. If the answer is yes, it’s probably worth tinkering with it instead of scrapping it.
Partner & Specialist in Professional Practices
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