Eat what you kill, or else
Exercise
Explain the likely consequences of the twoincentive systems referred to in the following newspaper clip. Guess underwhich circumstances will each system be more efficient. Try using the databelow to test some of your conclusions. Which system requires more control?
“Most top-tier New York [law] firms alsoshare profits among partners based on how much business each brings in. This isknown in the trade as ‘eat what you kill’, which gives some idea of the kind ofaggressiveness it encourages. All five of London’s top firms, by contrast,share profits among partners according to seniority, a system appropriatelyknown as ‘lockstep’, which they believe encourages teamwork and minimisesinternal squabbling. To persuade Rogers & Wells to merge, Clifford Chancehad to agree to a ‘modified’ lockstep, letting the New York firm’s biggestrainmakers keep their higher earnings until 2002, when lockstep is supposed tobe reimposed”.[1]
[1] Source: The Economist, “LawyersGo Global: The Battle of the Atlantic”, February 26, 2000, p. 90.
Analysis
Some preliminary and conjecturalelements for discussion:
a) On consequences,algunas de las ventajas de la distribución de beneficios por antigüedad son queanima el trabajo en equipo y con un horizonte a largo plazo y reduce el incentivoa dejar la firma. Evita también discusiones acerca de los efectos del trabajode cada socio en el rendimiento de los demás socios y la reputación de lafirma, y reduce los incentivos para que estos efectos sean negativos. Por elcontrario, una retribución más ligada al rendimiento anual motiva una mayorproductividad a corto plazo (this may perhaps be shown running some regressionson the data provided in the article), a costa de sacrificar la calidad y ellargo plazo. Por este motivo, es probable que requiera un mayor control.
b) On circumstances, perhapsindividual incentives are more suitable for top firms, such as those of NYC,maybe because human capital needed for top legal work is more individual. Onthe contrary, lower quality legal services might be produced in a moreinteractive way, calling for profit sharing.
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