Lockstep Finance

Lockstep finance is a compensation system predominantly used in partnerships, particularly law firms, consulting firms, and accounting firms. Its defining characteristic is a structured, predictable, and seniority-based progression of partner compensation.

In a lockstep system, partners advance through predetermined ‘steps’ or levels over time. As they progress, their share of the firm’s profits, and therefore their individual compensation, automatically increases. This progression is largely based on tenure within the partnership, rewarding loyalty and experience. The specific criteria for advancement, such as years of service, are clearly defined and transparent to all partners.

The primary advantage of lockstep is its fostering of collegiality and collaboration. Because compensation is tied to seniority rather than individual performance or origination, partners are incentivized to prioritize the overall success of the firm. They are more likely to share clients, mentor junior colleagues, and contribute to firm-wide initiatives without fear of directly impacting their individual earnings in the short term. This promotes a supportive and team-oriented culture.

Lockstep also offers predictability and stability. Partners understand the rules of the game and can anticipate their future earnings based on their years within the firm. This reduces internal competition and allows partners to focus on their work and client relationships rather than constantly vying for a larger piece of the pie.

However, lockstep is not without its drawbacks. One significant criticism is that it can undercompensate high-performing partners and overcompensate less productive ones, especially those who have simply accumulated years of service. This can lead to resentment among star performers who feel they are not being adequately rewarded for their contributions, potentially prompting them to leave the firm for more performance-based compensation structures.

Another disadvantage is its potential inflexibility. In a rapidly changing business environment, lockstep may struggle to adapt to shifts in market demand or evolving partner contributions. It can be difficult to adjust compensation quickly to reflect changes in individual performance or strategic priorities.

In recent years, many firms have moved away from strict lockstep systems, adopting modified versions that incorporate performance-based elements. These hybrid models aim to strike a balance between the benefits of lockstep, such as collegiality and stability, and the need to reward exceptional performance and attract top talent. These modifications can include bonus pools, performance-based adjustments to lockstep steps, or even a complete departure from lockstep for a portion of partner compensation.

Ultimately, the suitability of lockstep finance depends on the specific context of the firm, its culture, and its strategic goals. While it offers advantages in terms of collaboration and stability, its inherent inflexibility may require modifications to ensure that high-performing partners are adequately rewarded and that the firm remains competitive.