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BRAINARD, BENNIS &

FARRELL DECISION REPORT

IIM NAGPUR
LOVISH GARG
P-15013
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Letter of Transmittal
BRAINARD, BENNIS & FARRELL
To:
Mr. Richard Kincaid
From:
Lovish Garg
Management Trainee
Date: June,1995
Subject: Report on method for splitting of partnership profits
Please find the attached decision report containing the decision on how to share the
profit among the partners of the firm and the rationale behind it.

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Executive Summary
Brainard, Bennis and Farrell, an 83- lawyer firm, was founded in 1963 by three
partners to deliver outstanding legal services by engaging truly superior legal minds in a
common harmonious place, which was chosen outside of New York City in Stamford,
Connecticut.
The current compensation system in place didnt manage to keep all the partners
happy, as the younger partners were unhappy as they werent rewarded much for their efforts.
So, the issue for the compensation committee is to resolve the issue of performance versus
seniority and to implement an optimum compensation system that would be beneficial for all
the partners.
Thus, we have four options in place to implement:
1.
2.
3.
4.

Deploying a seniority based compensation system.


Deploying a performance based compensation system.
Using present system.
Deploying a new hybrid compensation system.

To evaluate this issue, three criteria were taken into consideration,


(a) Likely impact on younger partners.
(b) Likely impact on senior partners.
(c) Likely impact on the company.
The recommendation based on evaluation of these criteria is to implement a hybrid
system of compensation to maintain the culture and market spread of the company
intact.

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Table of Contents

PARTICULARS

PAGE NO.

Situation Analysis

Problem Statement

Options Available

Criteria for Evaluation

Evaluation of Options

6-7

Recommendation

Action Plan

Exhibits

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Situation Analysis
Brainard, Bennis and Farrell, an 83- lawyer firm, was founded in 1963 by three
partners to deliver outstanding legal services by engaging truly superior legal minds in a
common harmonious place, which was chosen outside of New York City in Stamford,
Connecticut. The compensation system was at ease in the early days of the company with
only 3 major partners, but as the company grew in size(Exhibit 1) it started facing difficulties
with a declining net income per partner from $339,000 in 1993 to $330,000 in 1994.
With the joining of new employees, there was a visible cultural split in the company,
which also meant a shift in the viewpoint of the younger partner who wanted to be rewarded
for their efforts, as they were only awarded 10 points with present compensation system.
Along with them Litigation Division also demanded a shift towards performance based
compensation system. This system resulted in getting more business, increasing productivity
and also increase in the billing efficiency of the Company.
The seniority based compensation system ensured that the company didnt sacrificed
on its culture of professionalism, quality and colleagueship, and also gave the sense of
economic security to the partners as they grew older and older as extra points were being
awarded to them in addition to the hours worked by them and also the origination credits
being allocated to them for the old clients. Thus, the current system favoured both the
younger and senior partners, but due to flattening of economy and other cost factors company
did not have enough money to keep everyone happy, thus the company faces a risk of losing
the young employees to the competitors which offer a better compensation scheme.
Thus, the company now addresses the major issue of seniority versus performance,
where one brings them new business while other maintains the professionalism and the
quality of service being offered by the company. Thus, to reach to an optimal balance
between the two systems with the given economy conditions and allocating different weights
to different criteria.
A hybrid system which takes into account both the younger and senior partners can be
designed which allocates 60% (Exhibit 2) of the points on the basis of performance and rest
on the basis of the level of seniority in the company (Exhibit 3).
*Source All the income and statistical figures from the case

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Problem Statement
To determine the optimum compensation system for Brainard, Bennis & Farrell and to
make the partners agree to it.

Options Available
1.
2.
3.
4.

Deploying a seniority based compensation system.


Deploying a performance based compensation system.
Using present system.
Deploying a new hybrid compensation system.

Criteria for Evaluation


(a) Likely impact on younger partners.
(b) Likely impact on senior partners.
(c) Likely impact on the company.

Evaluation of the Options


1. Deploying a seniority based compensation system.
a. Likely impact on younger partners: Younger partners would never accept such
a system and would look to move to other company which would offer them a
better compensation system
b. Likely impact on senior partners: Senior partners would gleefully accept this
system as it offers them better pay with less effort and also a major benefit of
economic security in their old age.
c. Likely impact on the company: The Company would be able to control
expectations, but it would lose out on important new business and thus would
reduce their market reach from the referrals.
2. Deploying a performance based compensation system.
a. Likely impact on younger partners: Younger partners would readily accept
such a system as it rewards them for their efforts and also motivates them to
work more.
b. Likely impact on senior partners: Senior partners would never want to have
such a system in place as they would not be able to bring new service and
would lead them think that their earlier contribution towards the company has
been forgotten completely.
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c. Likely impact on the company: The Company would have to compromise with
their culture and also it would difficult for them to assign weights to different
parameters, which could also discourage partners to explore new fields of
work.
3. Using present system.
a. Likely impact on younger partners: They would not be very happy with the
present system in place as they think that the rewards of their efforts are being
exploited by the senior partners who dont make much of an effort in bringing
new clients.
b. Likely impact on senior partners: They would be satisfied with the present
system in place as they will feel that they are being rewarded for their earlier
contributions towards the company.
c. Likely impact on the company: The Company is better off with this system
only if it continues to make profits, they face a risk of losing its younger
partners to the competitor firms and also destroying the culture of the
company with a possible rift among the partners.
4. Deploying a new hybrid compensation system.
a. Likely impact on younger partners: Younger partners would be satisfied with
the new system as about 60% of the points would be allocated on the basis of
previous year performance.
b. Likely impact on senior partners: They would be equally satisfied with the
new system as 40% points are allocated to the level of seniority thus ensuring
them a hefty amount of money.
c. Likely impact on the company: The Company would be best under this
situation as it keeps its younger partners intact in the company without
compromising on the culture of the firm and it would also help them earn
more profits with a perfect mixture of old and new clients, allowing them a
bigger referral market.

Recommendation
Brainard, Bennis and Farrell should bring in new hybrid compensation system,
because it benefits all the partners of the firm, by offering nearly equal weightage to both the
performance and the seniority, and the firm as they manage to maintain the culture and the
profits simultaneously.

Action Plan
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Deploy the hybrid system of compensation for splitting the companys profits among
the partners. The points allocated to the partners will now be a factor of both previous years
performance and the years of service done towards the company.
The points will have a 60% component of performance and rest for the level of
seniority, along with the currently worked number of hours, individual realization etc. The
senior partners along with 40% points on seniority will also earn the origination credit from
the clients they managed to bring to the company in the earlier years as part of the
performance parameters. This system should work well within the given economic conditions
in the country, along with the escalating costs and the stiff competition.

Word Count: 1098 words

Exhibit 1:

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Table displaying the number of partners in different practices

Area of Practice
Corporate Law
Litigation
Tax
Real Estate
Bankruptcy
Trusts and Estates

Exhibit 2:

Number of professionals
24
23
13
10
4
3

Points allocated in hybrid compensation system

Sales

Seniority
Parameters

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Making Profits/special contribution

Exhibit 3:

Performance Parameters

1. Billable hours worked


2. Non-billable hours worked
3. Billed hours
4. Individual realization
5. Fees billed to clients for which individual is responsible lawyer
6. Fees collected from clients
7. Time value of work done by all lawyers on this partners clients
8. Accrued profit on clients of responsible lawyer
9. Origination credits
10. Months to bill
11. Months to collect

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