A partner compensation system cannot reward what it cannot see.
Our 2026 Equity Partner Contribution and Compensation Survey, run with Performance Leader across more than 140 professional services firms, found that the vast majority of professional services firms continue to reward equity partners on the basis of somewhat traditional measures: managed fees, supervised revenue and originations. Yet only 21% of firms say their partner compensation system is designed to encourage equity partners to experiment with recalibrating the human and artificial element of how services are delivered.
This matters beyond the partnership. At SuperReturn in Berlin last month, Apollo’s Scott Kleinman told a room of lawyers, accountants and consultants, “you’re going to see a lot of pressure.”
Private capital investors are starting to price AI disruption into professional services the way they already have with software. Partner compensation is likely to be one of the first places where that pressure will be felt.
Here are three changes that can help your firm respond.
1. Redefine gross profit metrics to include AI usage
In a problem that predates AI, most partner performance systems continue to favor revenue over profit. Yet gross profit generated at service line and team level remains the best way to drive profitability. Depending on whether your delivery model is high touch (partner-led) or low touch (volume-based), it can make sense to hard-wire gross profit to the clients and projects each partner leads.
Artificial intelligence changes how many professionals you need at each level of experience compared to how much of that work AI agents and similar technology now do instead. This means that to understand your true cost of service, you need to include the cost of AI in your service deliver cost as part of gross profit.
Your approach to gross profit calculation must include the cost of that AI, for two reasons:
First, you can’t optimize for efficiency without knowing the full cost of delivering the service.
Second, if a major cost element is missing, cross-team comparisons, performance discussions, evaluations and reward allocations won’t provide accurate results.
And recovery / realization, a traditional proxy for service profitability, also does not adequately capture your technology cost in service delivery.
Start with your net revenue: gross revenue plus premiums, minus discounts, minus write-downs, minus charge-offs.
Then subtract your direct costs: the hours people worked, costed at the different rates for each level of seniority. Then factor in their AI usage at gross profit level.
If your AI license and token fees keep lurking in your overhead costs, they’re invisible on the P&Ls of individual teams, groups and partners, or they’re lumped into some opaque overhead allocation key which means your service line leaders and partners don’t think they can control them.
Technology is rapidly overtaking real estate as the second-largest P&L item after people costs. AI is now such a significant factor in production that it earns a spot above the gross profit line.
Action: Ask whether your current service line gross profit shows the full cost of AI-enabled delivery. If they don’t, agree how AI usage will be measured and attributed. This approach gives you a better picture day-to-day and less arguments about what the numbers don’t capture during your next remuneration round.
2. Create incentives for true innovation
Innovation rarely factors into partner compensation decisions. It doesn’t feature in most partner contribution frameworks, partner objectives, review meetings or formal evaluations. And if it does, innovation rarely impacts a partner’s remuneration.
The problem is that most firms reward partners for only two components of the professional services value chain: relationships and profitable delivery. Yet when technology disrupts the entire business model, this approach may be worth revisiting.
Isn’t it time that you made innovation visible in how you manage performance, and how you reward partners for making the right investments?
A recent Financial Times report on McKinsey shows the direction of travel: the firm has reportedly spent two years overhauling how it pays its partners, moving away from the billable hour model it was built on and toward performance-based fees.
That kind of shift doesn’t happen without partners willing to back it (taking on client relationships priced differently from how the firm has always priced them) before it’s proven, with no guarantee the model holds. It’s exactly the kind of risk most partner compensation systems still punish rather than reward.
Fund the risk, not just the reward. Most firms only reward results: Partner A had a good result because they generated good revenue, and compensation follows. But we need to allow people to take risks even when those risks might not pay off. At a minimum, their compensation should not be negatively affected, and ideally, they receive a financial incentive specifically for taking the risk.
Reward can take various forms. The easiest way to create a financial reward is to create a special bonus pool. This pool could be allocated to those service line leaders who have demonstrably rebalanced the equation between how humans and technology deliver the defined work types in their group, especially where their objectives called for that transformation.
Absent financial reward, peer recognition is also a powerful, non-financial motivator. A combination often works best.
To be clear, we are not advocating that partners set off and create clever AI agents on their own and then claiming they’ve been innovative: incentivizing innovation is not about AI adoption.
We also are not advocating that all client-facing partners stop developing relationships and focus all of their energy on innovation. Each firm will find its own balance in how it rewards partners for short-term and long-term outcomes.
Action: Start by embedding innovation as part of your partner contribution standards. Agree objectives for service line transformation with service line leaders and, if appropriate, key partners. Carve out a meaningful amount of your profit pool to reward to service line leaders and, if appropriate, equity partners for innovation successes and innovation experimentation. Showcase these successes and experimentation in the partnership.
3. Embed a long-term view of performance and reward allocation
Annual resets punish long-term bets. Many partner compensation systems overfocus on current financial year results. This approach will struggle because most AI investments won’t pay off within the same financial year in which the investment was made.
There are two ways to build patience into the architecture. The best partner compensation systems contain a long-term value creation element reflecting how the firm’s “enterprise value” grows over time. Yet most partnerships no longer recognize a “goodwill” element in their compensation design. Thus, if your partner compensation is built on annual profit shares, they need to be sticky enough to reflect that multi-year horizon over which investments gestate.
Second, even if your partners share in annual profits, your horizon across which you review partner performance can be extended to two or even three years. This allows early investments in business transformation or other innovation to be reflected in performance results.
For all of this to work, the compensation committee must be aligned with the approach. That means the committee needs to have a shared view with management of what outcomes merit recognition and how the return of long-term investments impacts partner compensation.
Action: Review how your partner contribution recognizes innovation or service line transformation (for leaders). If it does, review your data to test whether, for example, a successful service line transformation in a prior year is recognized in your current profit-sharing model. If not, consider changing your partner compensation policy by balancing – carefully – relationships, profitability and innovation successes.
Is your compensation system AI-ready?
None of this requires waiting for certainty about how AI will reshape your sector. It requires deciding now whether your compensation system is undermining or empowering your strategy.
Start by taking these questions to your next compensation committee meeting:
Do we measure the true gross profit of AI-enabled work?
Can partners innovate how work is delivered without being penalized in the remuneration round (assuming they don’t take their eye off the ball on relationships in the meantime)?
How prominently does successful service line transformation feature on the “scorecard” for service line leaders?
Will partners share fairly in value that takes more than one financial year to emerge?
How do we showcase successful innovation at our firm?
If the answer to any of these is unclear, your system isn’t yet giving partners a clear reason to change how work is resourced and delivered.
Make sure your partner compensation system isn’t canceling out the investment your firm has already decided to make.
