A Checklist for Your Compensation Concerns
by Joel A. Rose
Partners' discontent over the amount of their compensation is but one unfortunate consequence of the economic slowdown. Adding to the issue are fears that pumped-up associate salaries and/or an "ineffective" system will increase bickering among owners when it comes time to dole out year-end distributions.
What should partners do? The best approach for owners is to openly and honestly discuss all their concerns about partner and associate compensation. If this is done now, it may be possible to resolve the issues that would otherwise lead to dissatisfaction at year-end.
To get you started, thoughtful examination of the issues outlined below should help you and your fellow owners devise a compensation approach that will better serve the needs of your firm and its owners. Consider the following questions:
A. What criteria does your firm use to determine partner and associate compensation? There are five issues to consider with Associate Compensation Plans. Does your approach to associate compensation suit today's law firm economics? The following questions will help you find out:
- How does your firm deal with the compression factor between partners and associates, and between recent law school graduates and associates with two to three, three to five, and five to eight years of experience?
- Which factors determine how an associate's compensation will progress:
- Negotiating a fair deal with the associate.
- A structured compensation program.
- Lockstep for the first two or three years.
- Lockstep followed by meritocracy.
- How does your law firm define meritocracy (i.e., quality of work, billable hours, non-billable contributions)?
- How does your firm compensation associates who work flextime or part-time (i.e., if an associate works 60% of the time, does he or she receive 60% of the total compensation of a full-time associate)?
- What non-cash compensation do associates expect (i.e., profit sharing, child care, mortgage assistance, elder care, other perks)?
B. How are business origination, working production, and non-billable consequential activities weighted and evaluated in determining associate and partner compensation and advancement?
C. If your firm uses a formula approach to compensation:
- How long does origination credit continue?
- Are origination credits transferable from one partner to another?
- To create a greater willingness among originating partners to delegate work, law firm owners need to reach consensus on the permanency of origination: Four possibilities:
- Continue origination credit for the life of the lawyer, or give it to the firm after a period of time (usually seven to ten years).
- Transfer the credit to a lawyer who is or becomes responsible for maintaining the client.
- Allocate the credit among the lawyers who originate the business and those who must maintain the client.
- Issue the credit to the firm in the same manner as to a partner. With this approach, the total amount of credits allocated to the firm may thereafter be reallocated to individual partners and reflected in their total credit calculation as consideration for business origination, work production, and profitability. The firm total may also be allocated to all partners equally.
In many instances, work will come to the firm without any clear indication of who should receive origination credit. The firm then has to decide whether to exclude these credits from its figures, assign them to the partner handling the work, or distribute them.
- Do attorneys share client credits for obtaining and/or doing work?
D. If your firm uses a "rough justice" partner compensation method:
- Who determines how much each partner will receive?
- How are compensation decisions reached and what information is considered?
- Is there, or should there be, an appeals process for aggrieved partners?
E. What can be done to overcome common problems affecting partner compensation? These can include:
- Emphasis on one or two factors, usually hours and billing, to the exclusion of other non-quantifiable criteria.
- Unclear compensation criteria that vary each year.
- Compensation committees whose members change annually.
- Partners who "play the numbers game" instead of doing what's best for the firm.
- Failure to recognize consequential, yet non-billable activities.
- Partner who are overprotective of clients and unwilling to delegate work to the more appropriate and cost-effective attorneys because of the firm's compensation system.
F. To what extent and in what order should the firm establish objectives, targets, and quotas of acceptable partner performance for:
- Fee-producing activities (i.e. dollars, hours) for partners to be compensated at a certain level?
- Non-fee-producing activities (i.e., law firm management, marketing, training, and supervision of associates, and practice area management)?
G. How should partners who fail to achieve acceptable levels of performance be treated?
H. What incentive is or should be provided to partners who perform non-billable, yet highly consequential activities such as marketing, management, training and the like? How are or should such activities be recognized?
I. How are the contributions of partners and associates recognized in terms of compensation? For instance, how does the firm reward:
- Attorneys who "bind" existing clients to the firm?
- Attorneys who cross-sell the firm's services to existing clients?
J. Should partner opinion be solicited on:
- Satisfaction with their own compensation? or
- Compensation paid to other partners?
K. Should compensation committee members offer explanations to partners on the reasoning that leads to a particular compensation decision? If so, how?
©1999-2015 Joel A. Rose & Associates