I eat what I kill -

Norman Clark has taught us that the "eat what you kill" system of compensation does have some good points for many professionals.

I am an advocate of "eat what you kill," it does have some good points.

• It forces people to focus on fee production.?A professional who is content to drift along without working hard may do so, provided he or she is willing to pay a literal price in the form of lower compensation and provided further that the other professionals are willing to permit the underperforming professional to continue indefinitely to consume operating overhead.
• Because “eat what you kill” focuses on fee production, it has a direct positive impact on the management of working capital.?Professionals in these systems usually pay very close attention to timely and accurate billing of work in progress and energetic collection of accounts receivable. They know that they won’t get paid until the clients pay.
• “Eat what you kill” also can have indirect positive impacts on marketing and business development.?There is not much opportunity in an “eat what you kill” system for the “service professional,” who relies primarily on other professionals to provide his or her work. The easiest way, and usually the only way, that a partner can earn more money is to originate more work. This positive effect is negated, to some extent, by the fact that in many “eat what you kill” systems, the financial incentives tend to reward only work that the partner personally performs or supervises, which discourages cross-marketing. Some groups have their “eat what you kill” system to allow a commission on the fees that a professional originated; but, as discussed later in this chapter, these commission-based systems often require more work to administer accurately and equitably than they are worth.

Because they emphasize individual performance, “eat what you kill” systems frequently work well in law firms that are essentially expense-sharing arrangements among professionals with largely autonomous practices. (My colleagues and I refer to such a firm as a "condominium.") The benefits that alternative forms of performance-based compensation can promote, such as internal synergies and the building of a long-term brand for the firm, as distinguished from its individual professionals, usually are not priorities for the professionals of these firms or even relevant to the business models by which they structure their practices.?

the risks of "eat what you kill" compensation

Unless your firm is a condominium, an "eat what you kill" compensation can be toxic -- even fatal -- for small firms.?Perhaps all of the most serious risks of "eat what you kill" can be summed up in one phrase: "strategic blindness."

A focus on short-term results shortens the life expectancy of the firm.

One of the biggest risks is that after the professionals have “eaten,” there might not be enough of the “kill” left to feed sustainable long-term growth of the firm as a business institution. Some firms operate under a short-term concept of their mission: that is, for each of the partners to make as much money as they possibly can, and have a professional life that is reasonably satisfying.

This vision, coupled with a compensation system that rewards only short-term results, usually means that the firm will not survive the founding generation of professionals. The client base of the firm will slowly shrink, both in size and quality, as professionals retire; and the last professionals will turn out the lights and close the door. This is a perfectly acceptable long-term strategy (or, arguably, lack of strategy) for some firms. In some cases, they will have no other choice.

Partners build silos for themselves instead of a competitive brand for the firm.

“Eat what you kill” emphasizes individual professional performance, but it does little to support the development of a competitive brand identity for the firm. In “eat what you kill” firms, one is more likely to hear professionals say “my client,” rather than “our client.” To the extent that the firm has any cohesive, consistent marketing strategy, it usually is based on the premise, often repeated by the partners, that “our clients hire the lawyer and not the firm.” This concept might still be true for clients of retail law firms, which are smaller firms, usually local, that deliver relatively basic legal services to individuals and small businesses. It is becoming increasingly irrelevant to the engagement decisions of sophisticated consumers of legal services, who expect both a good lawyer and a law firm that has the internal capabilities to back up the partner and ensure client service of the highest quality.

The fear of losing credit for a fee is a major motivation for professionals to erect practice “silos” and hoard work during slow times. There is a strong correlation between an “eat what you kill” compensation system and anti-synergetic practices such as practice silos and hoarding. By creating disincentives for partners to recruit colleagues from other practice areas to participate in multidisciplinary practice teams, “eat what you kill” systems can deny a firm the opportunity to create a more attractive offering of legal expertise that is more likely to satisfy all of a client’s needs in a complex matter. This suggests a subtle structural explanation for why firms that cannot offer a credible multidisciplinary team approach often have great difficulty winning larger, high-value projects, even when they might have all the expertise that the client needs.

The firm misses opportunities and loses potential long-term clients.

There also is a high correlation between “eat what you kill” compensation systems and weak cross-marketing or cross-practice staffing of engagements. I have even observed professionals in "eat what you kill systems" who originate a matter outside of their usual practice and fail to refer it to a more qualified partner because they do not want to lose credit for the fee. Even in "eat what you kill" firms with partnership cultures that have stronger values of mutual good faith, cross-selling usually occurs only by chance. This is because “eat what you kill” systems frequently do not provide incentives that are significant enough for partners to be alert to cross-marketing opportunities.

The subtle barriers that “eat what you kill” compensation systems raise against inter-departmental practice teams and cross-selling combine to produce yet another observable characteristic of “eat what you kill” firms. These firms tend to have substantially lower rates of repeat client work than firms with more broadly based compensation systems. However, for firms that want to develop a stable client base, with a substantial core of long-term profitable clients, “eat what you kill” can be a subtle, but stubborn obstacle.

Professionals need to be more than "killers."

The principal defect in “eat what you kill” compensation is that it devalues, or ignores altogether, the actions by which partners support the long-term business performance of a firm. Fee receipts are convenient measurements of the level of business activity, but they are only short-term results. In some cases, reliance only on fee production can distort an evaluation of a partner’s performance. It is not unusual in some firms for the biggest fee producers also to be among the least profitable partners.

Measuring fees is not enough.

Many firms, and especially small and midsize firms that face increasingly tough competition from larger firms and non-traditional service providers, such as accounting firms, want more. These firms are avoiding the short-term temptations of “eat what you kill” systems in favor of other methods to incentivize and reward partner performance and long-term contribution to the value of the firm.

Determining partner compensation entirely or primarily as a percentage of fees collected is not the most accurate or reliable way for most law firms to define, promote, evaluate, and reward individual partner performance. The trend among law firms that want a more comprehensive view of partner performance is to incorporate individual performance goals into the partner compensation system, with goal achievement producing a defined financial reward.

Mark Borkowski is president of Mercantile Mergers & Acquisitions

www.mercantilemergersacquisitions.com