Sharing Origination, Cross-Selling and Client and Matter Credit

by Joel A. Rose
 

"Should 'origination credit' allocated to partners for generating new clients be permanent (as long as a client remains a client of the firm) or should there be a 'sunset rule' on such credit to encourage partners to generate business from new clients?"

"To what extent should partners who originate new clients share 'origination credit' with other members of the firm for cross-selling services and bonding these clients to the firm?"

This article describes an alternative approach for coping with partner compensation problems which may occur in those firms that assign partners 'permanent origination credit' for generating business from new clients, and methods for recognizing the contributions of other attorneys for cross-selling the firm's services to clients originated by other partners.

"Permanent" Origination Credit:

Origination of new business from existing and potential clients is a major criterion in setting partner compensation in most law firms. It is the practice in some firms for partners who originate business from new clients to receive "permanent" origination credit for all work performed for that client by the originating partner and others, as long as that client remains a client of the firm. In other firms, the originating partner receives origination credit for a limited time, i.e., three years, five years, seven years, etc. After the client has been a client of the firm for that period, the "originating" partner no longer receives origination credit for that client, even though that partner may be the primary communications conduit between the client and the firm.

The author has been called upon by several firms that have incorporated the "permanent origination credit" concept into their partner compensation system to address some very serious partner related problems which, unless checked at an early stage, may tear the firm apart. The first problem relates to the permanent origination credit lose their incentive to work as hard as non-originators. They no longer "have to" generate more new business from potential clients nor do they have to produce as much personal "billable work" as "non-originators" since they are assured of a share of profits from their origination credit and the personal production of others. This problem intensifies in firms which "non-originators" may inherit origination credit from departed or other partners.

Secondly, many non-originators complain bitterly about the dis-incentive for them to cross-sell the firm's services or attempt to expand work for a client that has been originated by another partner. They claim, "It is not worth taking the time to cross-sell another partner's client since my efforts will go unrewarded."

Unless partners in those firms which assign permanent origination credit to originators are willing and able to address and resolve these and other compensation problems, the continued viability of their firms, as they are presently constituted, may be at risk.

An Alternative to Permanent Origination Credit:

In many law firms, a partner receiving origination credit should be obligated to maintain contact with the client or the attorney(s) handling that client's work (if it is someone other than the originating partner) and participate actively in implementing the following functions to reinforce the relationship between the firm and the client:

  1. Bring the client in the door and make certain that the work is referred to the appropriate attorney or practice area for handling.
  2. Insure the client's work is performed in a quality, timely and cost-effective manner.
  3. Maintain active contact between the client, keeping in mind the opportunity to aid in the development of that client or spheres of client activity.
  4. Maintain a personal/professional relationship with the client and deal with any potential or actual problems which may arise during the processing of legal work or the collection of fees.
  5. Insure the timely status of other reporting to the client is accomplished according to schedules agreed upon with the client or internal schedules maintained by the partner receiving origination credit.
  6. Oversee and shepherd the client matter through the firm to ensure that work is performed in a timely manner.
  7. Lastly, oversee timely and appropriate billing and collection of bills for fees and costs.

From the above, it is obvious that merely bringing in a client across the firm's threshold, without performing the other listed functions will not assure the originating partner of receiving all of the proposed client origination credit.

It is important that the Originating Partner continue to receive all or some Client Origination Credit for some time even if one or more other partners are significantly involved in managing and/or performing the work for that client. The firm will continue to benefit by having the Originating partner retain some type of a personal or working relationship with that client. Also, the firm does not want the Originating partner to believe that by assigning a client or client work to another partner, the latter partner may attempt to persuade the client to refer all future work assignments to themselves thereby eliminating the Originating partner from having a continuing relationship with that client.

Changing Origination Credits

Changing the partner allocations of Origination Client Credit for a client are usually determined on a case-by-case basis, where appropriate, with credit sharing a reasonable option.  For example, where a client was brought in by Partner A 10 years prior, but has given no business to the firm for 7 years, and then was brought back to the firm through the efforts of Partner B, it may be appropriate to give all origination credit for that matter to B, or to share the credits, depending on the circumstances. Another circumstance under which origination credit for originating a “new” client may change is if Partner A brings in a client but after a period of years, Partner B, another Partner who has been managing that client and who is responsible for maintaining the relationship. If that happens and the Partners agree that a change in the Origination credit is appropriate, then it can be changed with the consent of the Managing Partner.  A third circumstance where origination credit may change is if a client that was originated by Partner A leaves the firm and after several years of not doing any business for that client, Partner B brings that client back into the firm. Partner B will receive origination credit for that client. Without getting into detail on how that may come about, it will take the approval of the Managing Partner, members of the Management Committee or the Compensation Committee to approve this change in origination credit.

Obviously, the preferred means of resolving issues where more than one partner feels entitled to origination credits for a particular client, is for the partners in question to negotiate an agreed sharing. However, upon request, an issue as to relative entitlement to origination credits will be resolved by the Managing Partner, the Management Committee or the Compensation Committee.

Responsible Partner Credit for a Client or Matter for Minding of Clients 

This credit is the dollar value of the amount of revenue received as the result of the work performed by a partner who has been designated as the Responsible Partner in charge of managing the work performed on a client matter (that was originated by another partner.)

Once the original Originating Partner no longer plays a principal role in retaining the client, i.e., the former delegates the client/matter to another partner and the original Originating Partner does not continue to either service the client or schmooze the client in a way that makes him or her the primary contact, then the original originator no longer qualifies for full origination credits for the client. To illustrate this point, following is one example of sharing Responsible Partner Credit I have recommended to other firms:

 The original Origination who is no longer responsible for that client may remain eligible to receive 75% of the originating credit for the first two or three years with a further reduction to 50%. In some firms, the 50% percent of the origination credit may remain thereafter with the original originator for a designated number of years – for two or three years or as long as that client remains a client of the firm before it may be reduced to 25%.

As the amount of the Origination Credit for the originating partner is reduced, Responsibility Credit will be transferred to the partner designated to serve as the  Responsible Partner by the Originating Partner. Questions regarding the allocation of Origination Credits and Responsible Partner Credits will be referred to the Managing Partner, the Management Committee or the Compensation Committee.

It should also be recognized that the more important the client, the more it is in the Firm’s interest to have multiple partners develop a significant client relationship.  The Managing Partner, members of the Management Committee and the Compensation Committee Executive Committee should continue to be mindful of the efforts of originating attorneys to foster the development of such relationships with important clients.

It is recommended that the Managing Partner and members of the Management and Compensation Committees define what a partner needs to do to qualify for this portion of the credit.  Otherwise, the policy may not be administered in a consistent manner, and those partners who do not receive Responsible attorney credit when others do will feel slighted. This will be especially important as the Managing Partner and members of the Management and Compensation Committees change. In other words, the present Managing Partner and members of the Management and Compensation Committees should set the parameters that will be used and interpreted by successor Committee members.

Matter Proliferation Credit

Partners should have an incentive to “proliferate” new kinds of business from existing clients, regardless of who is the originating attorney for the client. 

Matter Proliferation Credit is the dollar value of the amount of revenue received as the result of a partner proliferating work for a particular matter from an existing client that was originated by another partner. [Since it is important in many cases to know exactly what/who was pivotal in expanding existing client business, if the concerned partners are unable to reach an agreement, the decision will be made by the Managing Partner and members of the Management and Compensation Committees.]

A partner who proliferates new business from an existing client (for whom the partner is not the originating attorney), should request to receive matter proliferation credit for the file created for the new matter (from the Originating Partner for that client).

To prevent a “disincentive”, for the Originating Partner to keep client relationships to themselves, Matter Proliferation Credit should not be subtracted from Client Origination Credit.  (This presumes that the ability to proliferate the new business was somehow related to the existing client relationship.  Again, this type of issue should be resolved case-by-case by the partners concerned or the Managing Partner or members of the Management and Compensation Committees.)

Production Credit

This is the dollar value of the amount of revenue received as the result of a Partner’s personal production.  For example, if a Partner records $10,000 in time dollar value, which is billed and collected, he or she would receive Production Credit in the amount of $10,000. If a partner is designated by the Originating Partner to be the Responsible Partner for a client or matter, the former will receive Production Credit for all billable hours he or she devotes to working on that client matter (during the time he or she is managing the work on that client matter.)

Inherited Clients

In many firms, a partner who inherits a client from the originating partner whether through the retirement of the latter partner or otherwise may receive Client Origination Credit for that client. In other firms, a partner who inherits a client from the originating partner will receive credits based on a Responsible Partner retention basis.  The second partner serving as the Originating Attorney would share Responsible Partner Credits, as appropriate, with other partners who have significant responsibility for managing the client or client matter, and would not have entitlement to Client Origination Credits for that client.

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