Traditionally, admission to partnership in a professional firm has brought with it a complex bundle of rewards:

Equity Participation. Partners share in the net profits (or losses) of the firm, while non-partners receive salaries and perhaps bonuses.

Tenure. In most situations, partners cannot be removed except by an extraordinary vote of the partnership

Autonomy. Whereas juniors must accept the direction or influence of partners (if only because they will be subsequently judged for admission to the partnership by the partners), a partner has, in many firms, a significant degree of autonomy in what and how he or she practices. A partner’s work is no longer subject to automatic review by others.

Participation in Policy Making. As an equity participant in the firm, a partner usually has a right to be consulted on major policy decisions of the firm and has a say in how it is to be managed.

Income. While not necessarily a right of partnership, partners usually earn significantly more than non-partners. For some, the main benefit of being made partner is not autonomy, equity, tenure, or being consulted: it is the simple fact of reaping the financial rewards that they worked so hard for in their apprenticeship years.

Internal Status and Recognition. Apart from all of the foregoing benefits, partnership in the firm is also often eagerly sought because of the internal status and recognition it represents. Professionals, perhaps even more than other types of workers, seek the approbation of their peers: an acknowledgment of their worth. In the culture of most firms, this recognition is embedded in the transition to partnership. To be accepted into the partnership represents an anointing and admission into the ranks of the full professional. To be denied partnership is to be condemned to second-class status.

External Status and Recognition. Professionals seek not only the approbation of peers within the firm, but that of those outside. In the words of one professional, “For myself, I’d accept a non-partner position within the firm; I understand the internal circumstances. But when my friends and neighbors say, “What? They haven’t made you partner yet?” In these circumstances; it is as much the title of partner as it is the substance that is being sought.

What is significant about this list is that it bundles a large number of separate (or at least separable) rewards into one decision. If you are made a partner, you receive, in most firms, all six rewards. If you are turned down, you are denied all six. This strikes me as a somewhat blunt instrument to use in allocating organizational rewards. It is an unforgiving system that does not allow for subtle distinctions to be made. The world is not divided into two types of people: partner material and non-partner material. There are degrees.

These reflections suggest that it might be wise to try to unbundle the six rewards and not embed them all in one “go/no go” decision. It is certainly feasible. There is no reason why equity participation needs to be synonymous with partnership. Indeed, a number of professional service firms that are incorporated (though operating on partnership principles) spread equity participation to ranks below that of partner equivalent, thus giving a greater number of professionals a stake in the firm’s success. Even income levels can be separated from partnership. In some firms a fully productive junior can earn more than a less-than-productive partner, a scheme many other firms could usefully imitate.

Similarly, it is possible to separate tenure from partnership – in either direction. Non-partners can be given security of employment without being made partner, and many large professional firms have partnerships without a guarantee of tenure. Like senior officers at any large corporation, partners can be (gently) asked for their resignation if they cease to perform or meet the firm’s standards.

Participation in policy making can also be separate from partnership. At a number of firms there are, in effect, two classes of partners: nominal partners and real partners. The latter wield all of the power and make all of the important decisions. They rarely consult the nominal partners, and while there are partnership votes, these tend to be “rubber stamps” of decisions already made by those in power. I am not suggesting that this is the way to run a firm, although it has its merits: The point is that there are ways to separate membership in the partnership from policy making.

Autonomy, likewise, is a matter of degree. In some firms, partners are truly autonomous, subject only to the constraints of the partnership profit-splitting system. In other firms, junior partners continue to act under the direction of department heads and other more senior partners. The degree of autonomy granted to partners (and expected by them) is a function of the internal culture of the firm and the choices the firm has made in this regard. It is not preordained.

Finally, status-internal and external. The relative importance of partnership as a sign of internal status differs significantly between firms. In firms with a well-developed class consciousness, the difference in status between partner and non-partner is all important. Partners are royalty and all others are “the common people”. A real “us them” mentality prevails. In such firms, the status value of being a partner is immeasurable.

However, it need not he that way. In other firms, junior non-partners serve on important committees, take significant responsibility, and, within the internal culture, are treated with as much respect as partners. The difference in status (which still exists) is minimized, and the privileges of rank are suppressed. In such firms, partnership is not sought because of status needs. Failing to achieve partnership, or being delayed in achieving it, has its disappointments, but a loss of face in the organization is not one of them. Such firms are more likely to be able to retain desirable professionals short of full partnership.

External status can also be managed. A number of professional service firms have ceased to make any distinctions in the outside world as to the rank of staff members. One I know calls everyone an “associate” regardless of tenure, income, internal status, responsibilities, and accomplishments. Internal titles might be used to reflect internal work assignments (manager, department head, executive committee chairman), but to the outside world, all members of the firm have equivalent titles. This is not to say that differences in external status do not exist, due to reputation, performance, and the like, but the firm does not go out of its way to accentuate these. External status is a function of the individual’s abilities, not his or her place in the hierarchy.

So what does all this mean? It means that professional firms have more options in distributing their rewards “hard” and “soft” – than many have acknowledged. They have one way of recognizing individual performance and distinctions between people – the sledgehammer of the partnership decision. By “unbundling” the mixture of rewards represented by partnership, it should, indeed, be possible to retain good people without making them partners.

Excerpted from ‘Managing the Professional Service Firm’ by David Maister, pages 186 to 188