According to a recent survey of law firm partners—60% of which were laterals—firm culture was the second most important factor when deciding which firm to join, behind only practice area support. Compensation, somewhat surprisingly, was sixth.

At the same time that would-be lateral partners are apparently favoring culture over compensation when looking to make a move, more attention in the legal industry is being given to the disparities in how law firm partners are compensated.

What many people in the legal industry fail to realize is that law firm culture and partner compensation go hand in hand. This is particularly the case when a firm's culture embodies, or aspires to embody, collegiality and collaboration.

A collegial, collaborative culture is relatively easy to create at a law firm when it comes to divvying up tasks on client matters or assigning responsibilities to members of a particular committee.

But when it comes to partner compensation, establishing such a culture can be more difficult. Because partners are individuals with their own interests and desires, "micro cultures" can develop around compensation systems and challenge firms' efforts to build positive, supportive firmwide cultures.

Here are three ways partner compensation systems can challenge law firm culture—and one way for law firms to fend off that challenge.

• The subjective factors baked into a law firm's compensation system can undermine its culture.

Law firms tend to follow one of four systems for compensating partners.

A lockstep system ensures all partners at a certain level, usually based on their seniority or the size of their book of business, will receive the same compensation. A formula system doles out compensation to partners based on their performance in a number of metrics such as billed hours, business generated, and collection rate. A hybrid system mixes objective factors like those considered in lockstep and formula systems with subjective factors like potential for growth.

Finally, a black box system determines partner compensation based on factors known only to a small number of firm partners—most likely those who sit on a firm's compensation committee.

It is easy to see how each of these systems can impact a firm's efforts to build a collegial, collaborative culture, particularly when subjectivity enters the picture.

The lockstep, formula and hybrid systems, while appearing objective, could create issues. For example, if a system is based on origination of client matters, and an attorney has a disputed claim of originating a client, there could be some bad blood. Worse, a culture of secrecy or "every person for themselves" could develop out of fear of having to share credit with colleagues deemed to be less involved in the origination of a client or new work from that client.

Ill will could also be created by formula and hybrid compensation systems that rely too heavily on awards based on politics. It's hard to be collegial and collaborative when your fellow partners are competing to stay in the good graces of influential rainmaking partners and compensation committee members.

And of course, a black box system can have detrimental effects on a collegial, collaborative culture when partners learn that similarly situated colleagues are making significantly more money than they are and do not receive an explanation for why.

• Perceived unfair disparities in compensation can damage a law firm's culture—no matter if a firm's compensation system is open or closed.

Despite the different compensation systems employed by law firms, all compensation systems fall into one of two broad categories—open or closed. Either every partner knows, or has the opportunity to learn, what every other partner is taking home (open), or they do not (closed). Either system can damage a firm's culture.

An open system can produce envy among partners who feel they are being undervalued compared to their colleagues. This system often breeds competition, as those partners will do what they feel is necessary to improve their standing against their colleagues, including perhaps hoarding billable work and business development opportunities. Needless to say, that is not conducive to a firm's culture of collegiality and collaboration.

A closed system can help reduce this envy if partners trust their firm's compensation committee.

Unlike open systems, closed systems bring with them an "out of sight, out of mind" mentality to compensation. If partners aren't seeing regular reports of their colleagues' compensation, the topic is unlikely to be at the top of their minds.

But closed systems pose their own challenges.

For one, on a day-to-day basis, it is entirely possible that committee members' interactions with other partners will be impacted—for better or worse—by how fairly those other partners feel they are being compensated.

And, unlike open systems, closed systems allow suspicions about disparities in compensation to fester. A partner's mere suspicions about being undercompensated, and the corrective actions they feel they must take to remedy the issue, could pose a problem for a firm's culture—especially if colleagues who feel the same way join in the fight.

• The compensation of incoming lateral hires can be a problem for a law firm's culture.

By now, you've surely read about the busy marketplace for lateral partners, how more and more late-career laterals are changing firms, the buckets of money some law firms are promising lateral partners, and, perhaps as a result of these three trends, one recruiter's opinion that the end is near for the lockstep compensation model for partners.

In this context, it should be no surprise that some lateral partners may have a difficult time being accepted by their new colleagues. This difficulty is often tied to how those lateral partners are being compensated.

If laterals' compensation packages are outliers compared to their new colleagues' packages, which causes a perception that those laterals are being overpaid, their colleagues could resent them.

If laterals' new firms view partners' failures to meet their business origination goals as tantamount to an ethics violation, there could be pushback from colleagues if those laterals do not meet or surpass their goals (which is not an uncommon occurrence).

If laterals bring a team with them, and that team has better compensation packages or more resources to work with than their new colleagues, there could be some ill will harbored by those colleagues.

Law firms where big-name incoming lateral hires with big books of business are the exception and not the rule may have cultures that struggle with significant compensation disparities among rainmaking partners.

• Law firms can fend off these challenges by choosing compensation systems that are in sync with their cultures and avowedly supported by top leadership.

Just because a law firm's compensation system could undermine its culture doesn't mean that it must. Obviously, many law firms have built collegial, collaborative cultures while employing one of the compensation systems I mentioned above.

These firms have done so because they've likely aligned their compensation systems with their cultures and have made proactive efforts to generate support for those systems among partners from the top down.

As to alignment, these firms have likely evaluated the nature of their client relationships, the industries they serve, their practices, and their cultures and have determined that a particular system fits this genetic makeup. A lockstep system is a no-brainer for a white-shoe law firm with long-standing institutional clients. A formula system, however, may be more appropriate for entrepreneurial firms that put a premium on growth through new clients.

As to generating support, these firms have likely made it a priority to communicate openly and credibly with their partners about the firms' compensation systems. This can only be done when a firm's leadership is strong and respected. These firms' leaders are likely consistent with how their compensation systems are applied. And they're likely consistent about explaining the pros and cons of the systems. As a result, the firms' partners understand why the systems are in place and how they stand to benefit from them.

• The interaction between partner compensation and law firm culture should not be neglected.

We are in an era where law firms understand the power of their cultures to retain (or repel) top talent, and are investing many resources to develop those cultures. But sometimes, another equally important mechanism firms use to attract talent, their partner compensation systems, can unwittingly subvert those efforts.

Law firms can avoid this problem by being mindful of how these two pillars of law firm success interact with each other and by making an effort to ensure that they're operating in harmony.

Steven Kruza is a principal at Kruza Legal Search. For four decades, Kruza Legal Search has been placing attorneys, administrative staff and paralegals in law firms and corporate legal departments across the United States. He can be reached at [email protected] or 215-981-5455.