There are several different ways a firm may determine partner remuneration. Some of the most common include employee performance, seniority, and subjective merit. The size of the firm and strategic positioning can also have an effect on the way partners are compensated. The overall goal of most firms is to determine which type of partner remuneration will ensure the highest level of employee retention.
One of the most straightforward types of partner remuneration is pay for performance. With this system, the employee is compensated directly from the profits made from his or her clients. While this type of remuneration can help to motivate individual employees, it can also lead to fragmentation in the firm, as workers tend to see the clients they work with as their own, rather than as a part of the company’s customer base.
Seniority is another simple form of partner remuneration. It involves deciding upon a certain percentage of profits for each partner, based on how long they have been with the firm. While this type of compensation can be easy to calculate, it may not appropriately award top performers. It can also cause discord if the most highly compensated partners do not appear to be carrying their weight.
Subjective merit is one of the most complex types of partner remuneration. With this method, objective factors are used to support a subjective analysis of the partner’s performance. This is usually determined by a small group of fellow partners. Compensation is based on the quality of work the employee is deemed to have accomplished based on this analysis. While company politics can complicate this system, it is generally an effective way to encourage stronger performance.
Remuneration can also be determined by the role the partner plays in the firm. Partners with management duties may receive more compensation. Remuneration will also often be different for partners who are nearing retirement age and taking a lesser role in company affairs. The performance of partners who work part-time hours may also be analyzed differently than that of full-time employees.
Partner remuneration can play an important role in the strategic direction of a firm. By effectively dividing profits among partners, a company can improve its retention of top employees. This helps to give the firm a competitive advantage. A key factor in achieving this is to ensure that there is not major discontent among the partners about the remuneration structure.