NEWER TRENDS IN DETERMINING THE MOST APPROPRIATE PARTNER COMPENSATION SYSTEM FOR YOUR FIRM AND STANDARDS TO ASSESS PARTNER PERFORMANCEby Joel A. Rose
A firm develops a compensation philosophy that is realistic in light of the partners' personal, professional and economic objectives; the firm's culture and its competitive environment.
Changes in client attitudes, along with the economy and increased competitiveness have forced partners in the overwhelming majority of firms to reexamine their partner compensation systems to ensure that their systems for compensating partners are supporting the firm's immediate and long-term goals and objectives.
Partners in a great majority of firms have realized that "You Get What You Reward." Compensation systems in the more professionally and financially successful firms don't just "share the profits." Rather, they are used as a system for management. The most successful compensation systems place strong emphasis on merit and performance. Systems that promote partner stability and that reward fairly the total fee producing, business generation from new and existing clients and non-billable contributions of partners work best. In today's highly competitive marketplace, the more successful compensation systems reward marketing and cross-selling of the firm's expertise; promote profitability, i.e., realization, leverage, timely billings and collections, etc.; serve the clients' best interests; promote the team approach to the practice of law; and Offer incentives to all partners.
It is commonplace, in many firms, for there to be incentives to encourage partners to perform those activities that address the firm's immediate and long-term priorities and objectives. The factors to be rewarded and the amount of the incentive provides an incentive for partners to devote their personal time and effort to perform those activities to enhance firm profitability by marketing the firm, encouraging current and potential clients to utilize the expertise of other attorneys, benefitting from leveraging the work of partners (other than the partner who is generating the client business) associates and paralegals. transition clients to other lawyers competent to perform their work, etc. Hence, for the "good of the firm" partners in many of the more financially and professionally successful law firms have identified and defined standards against which partner performance will be determined.
Examples of these standards are listed below. Interestingly, in the overwhelming majority of these firms, formal weighting is not applied to each of the compensation standards, nor an arithmetical or formula driven approach to analyzing these standards are applied. However, data is gathered about the performance of each partner's contributions and this data is used as a data base to support the firm's decisions about the objective elements to be considered, along with the subjective contributions of each partner. Thus, the total contributions of partners are assessed in "rough justice" fashion by their Management and Compensation Committees, and ratified by the partners.
In a great majority of these firms, compensation reflects each partner's overall contribution to the firm, with minimal regard to the length of time that partner has been associated with the firm. The compensation model in these firms assumes that partners will provide quality services and will work hard. Therefore, no special credit are usually given to these factors, unless of course a particular partner makes unusual "self-sacrifices" in behalf of the client that is well over and above the firm's reasonable expectations of a hard-working partner. The overall contributions of each partner includes intangibles that go beyond being a "good lawyer" and a "hard worker." The following examples will illustrate this point:
Further, in the overwhelming number of firms that adhere to this compensation philosophy, it is generally understood by the partners, and reinforced through communications and actions taken by the Compensation and Management Committee, that the firm will not endorse an "eat what you kill" attitude. Instead, the members of the Compensation and Management Committee consider the full panoply of standards agreed to by the partners and assess each partner's performance of each partner against each criterion.
Partner Compensation Standards
1. Client Origination: Contribution to origination and development of new clients clearly need to be recognized by the partners. Obtaining new business is critical to the firm's continued well-being and growth. This particularly is true in the highly competitive market. Consequently, the firm must recognize the obvious importance which attaches to this particular skill.
2. Client Retention: Additional business from existing clients, oftentimes the product of quality work satisfactorily performed by members other than the partner who originated a client account, is critical to the firm's continued well-being and growth. This particularly is true in today's highly competitive market. It, therefore, must be recognized as a valuable contribution to the firm. This trait cannot be measured in objective terms only, since it is impossible in many cases to know exactly what/who was pivotal in expanding existing client business, i.e., minders, binders, etc.
Partners must recognize, therefore, the need also to "credit" those attorneys responsible for maintaining and continuing positive relations with existing clients. Performance of quality work and maintenance of solid relationships with clients go a long way in securing the reputation and influence of "rainmakers" within the firm.
3. Quality of Work Product/Timeliness: The need to recognize general efficiency, effort, diligence, competence, dependability and timeliness in handling work, either of a chargeable, firm management or business development nature needs to be recognized. "Quality" includes knowledge of applicable law, imagination, creativity and innovation, ability to write clearly and persuasively, ability to analyze quickly and accurately; good judgment; ability to plan and implement legal strategies; oral communication skills, the ability to handle the unexpected; the ability to negotiate; and the ability to handle complex matters. A partner must be willing to delegate work horizontally or vertically to the appropriate expertise or level of competence to ensure that work is done when it is promised to the client and of course, within deadlines provided by law.
4. Partner Productivity: The partners need to recognize that defining the productivity of an attorney is more complex than simply looking at computer numbers. Productivity is an aggregation generated by the hours the partner works, by the efficiency with which the work is handled, the number of matters handled, the effort generated through working with other lawyers in the firm, etc. This includes the value of time worked and/or delegated to others, the condition of the partner's accounts receivable and work-in-process inventory, the extent to which he/she properly utilizes other attorneys and other firm resources, etc. The notion of "rough justice," therefore, also plays a part in the "productivity" inquiry. It goes beyond "billable hours."
5. Seniority: The partner must recognize the importance and value of tenure and/or seniority within the firm. A lawyer's value to the firm over the years and his/her contribution to firm growth and success cannot be overlooked. Seniority is not age alone, nor is it only the number of years a lawyer has been with a firm. Rather, it means the number of years the partner has spent developing and maintaining clients, building and enhancing the firm's reputation and participating in the training and development of a cadre of lawyers who produce for the benefit of all the partners in the firm.
6. Firm Management and Leadership: Contribution to firm management, including efficiency and effectiveness in handling management assignments, is critical to the firm's future and must be recognized. These are major responsibilities and our long-range success depends upon the skill and success of those people involved. The responsibilities of management require large amounts of time be devoted to the task. Management responsibility in the firm, however, also includes practice management, recruiting, marketing, as well as the handling of "mega" pieces of work. A partner involved in firm management responsibilities must treat the work with the same importance he/she would treat client work.
While the partners must recognize these factors, to the extent that certain of these management responsibilities are tangibly recognized by the certain of these management responsibilities are tangibly recognized by the firm, these duties should be given some weight in determining the compensation. This factor should be limited to the managing partners and in special circumstances, to those partners designated by the partners.
7. Compliance with Firm Policies: Partners must recognize willingness to abide by the policies of the firm. This includes:
The partners are expected to take specific note of partners' noncompliance with firm policies.
8. Personal Relationships and Teamwork: Practicing a team concept, including participation in, and cooperation on, firm committees, etc. is expected, client sharing, client introductions, and overall promotion of harmony and goodwill among firm members is critical and absolutely expected. These include:
9. Partner Participation in Firm Activities/Functions: Partners are obligated to attend firm social and professional meetings, participation in those management decisions and activities which appropriately fall upon partners and participating fully in the "drudgery" side of the business.
10. Lawyer Development and Delegation of Work: Time and effort in working with younger lawyers to increase their professional skills must be rewarded. This includes the training and development of associates and paralegals.
11. Professional and Community Activities: Contributions that enhance the firm's image and prestige through maintaining good relations with other lawyers, speaking at CL programs, publishing, participating in bar activities, and assuming bar and community leadership positions must also be recognized.
Partners acknowledge the importance of being visible in civic and/or charitable matters in the community and within the bar, because it is the right thing to do, it assists in developing new work, and assists in fostering leadership training for young lawyers. However, these activities should be performed with the knowledge and "approval" of partners, according to a budgeted schedule, as required.
When selecting the most appropriate compensation plan, partners are cautioned that the lawyer compensation practices of other firms may not be satisfactory for their own offices. The fact the certain plans are in use does not indicate that they may be suitable elsewhere or even that they work well for the offices that use them. As a law firm evolves, time will bring changes to its partners and in their values and goals. What pleased the founding partners may not necessarily be welcomed by the new order. This is a natural and inevitable course of events. The firm that succeeds in establishing a sound compensation plan is one in which partners view decision-making as a dynamic process, and understand that their system for partner compensation is not etched in stone.
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