It has been a while since I took the S.A.T, but here goes. Nancy Grace: Casey Anthony Verdict; Valerie Katz: ________.

A. Ramona Singer Pinot Grigio;
B. Biglaw Spring Bonuses;
C. Closed Compensation Model in Small Firms;
D. All of the above;
E. None of the above.

Correct Answer: C. I, like Ms. Grace about the Tot-Mom verdict, am full of rage about closed compensation models in small firms.

A “closed compensation” model is defined as one “where partners in a firm do not know how much the others earn. While partners generally have a sense of how compensation is determined, they will not be party to the outcome by which individual compensation is arrived at.” An “open compensation” model, by contrast, is “one where individual partner compensation is known by all partners of the firm.”

A recent study by the Institute for Women’s Policy Research found that almost half of all workers in the U.S. “are either contractually forbidden or strongly discouraged from discussing their pay with their colleagues.” And, 66.7% of the respondents to my salary survey reported that they did not know the compensation that other associates earn.

Why does this make me think “the devil is dancing?” Find out after the jump….

First, as suggested in the WaPo article, when salary information is secret it is “harder for employees to discover whether they’re being discriminated against or not.”

Second, having salary information about co-workers allows an employee to “assess [her] value” and can lead to “more ‘adult arrangements’ between workers and their supervisors.”

Third, open compensation models result in greater honesty and accountability among partners.

Opponents of open-compensation claim that “such knowledge simply makes [employees/partners] disgruntled and anxious.” Others argue that:

Closed compensation models also have the advantage of being able to more accurately reward star performance, as interpersonal and political considerations are less likely to directly influence compensation outcomes at the firm. Specifically, supporters of closed compensation models point to their ability to more readily reward rising stars in the firm, as perception issues and compensation comparisons are less likely to occur in a blinded model.

Neither of these justifications seem to offer enough of a reason to hide salary information. Indeed, even without salary information, associates and partners have enough other evidence of superior performance to be “disgruntled and anxious.” Without knowing what other associates made at my prior firm, I was still able to determine how I stacked up against other associates (answer: the best). And, unless bills are made contraband, it is pretty easy to figure out how much revenue each attorney is bringing in to the firm.

Further, even if I believed that a closed compensation model made it easier to award “star performance” (I do not believe this), that does not foreclose the possibility that compensation decisions for other attorneys may be based on political considerations or favoritism. After all, it is a closed system and so no one truly knows what factors are considered in determining compensation. To believe otherwise would require blind faith in whoever is setting salaries (something I would imagine attorneys would be reluctant to do).

If you work at small firm, you likely know everything about your co-workers. You know about their kids’ softball games, you have seen many pictures of their wives, and you have seen some of them get freaky on the dance floor at holiday time. This is likely why you chose to work at a small firm — because you wanted a close-knit work environment. In fact, the attorneys who responded to my “small is beautiful” contest told me that they wanted to keep their small firms small because they wanted to keep the environment collegial and prevent any upset to the work-life balance struck by the firm. Given this, and the fact that most people choose to work at small firms for reasons other than economics, there is no reason to prevent these attorneys from having an “adult arrangement” with each other when it comes to compensation.

In other words, if I know that your wife is not a natural blonde, then shouldn’t I know how much more money you make than me?

If there are any readers (partner or associate) whose firm uses a closed compensation model and you support the closed model, please email me with your reasons. If no one gives me some answers soon, this column is going to start looking a lot like HLN.

When not writing about small law firms for Above the Law, Valerie Katz (not her real name) works at a small firm in Chicago. You can reach her by email at [email protected] and follow her on Twitter at @ValerieLKatz.

comments sponsored by

25 comments (hidden for your protection) Show all comments