Fairness, trust and motivation in Profit Sharing Systems within German law firms. A qualitative analysis of law firm partner needs in a peer-to-peer context

Abstract

In professional partnerships, partners have to agree how to split their income between each other. Such a profit sharing system (PSS) must be perceived as being fair and motivating to ensure the enduring success of the partnership. Surprisingly, quite different systems are in use today in otherwise comparable firms. The understanding of a “fair share” and how to motivate best varies con-siderably. Existing literature on professional service firms rarely discusses in which circumstances the different PSS types are adequate; non-economic per-spectives are scarce. Using semi-structured interviews with senior partners from large German law firms, this study evaluates their understanding of trust, fairness and motivation, and how that links to their respective PSS’s. It adds the otherwise missing peer-to-peer perspective to existing organisational research on fairness, trust and motivation. The findings include the presence of both extrinsic and intrinsic motivation through money, but also through peer pressure. Different fairness ideals clearly link to PSS types. Mutual trust, based on knowing each other, is key in all but one PSS type. An important, but yet overlooked differentiator between PSS’s is whether profit distribution decisions are made based on algorithms or on human (committee) decisions. A new framework is developed that links the beliefs and values of the partners with the specific characteristics of the PSS, which are systematically assessed for the first time. This framework offers partners from law firms and potentially other professional service firms a methodical approach to identify and discuss their needs and to identify the most appropriate PSS for their specific situation.