As a law firm partner, your compensation is likely one of the most important factors in your professional life. It determines your financial stability, allows you to provide for your family, and can even impact your ability to advance within the firm. However, understanding law firm partner compensation can be complex and confusing, as it is often based on a variety of factors and may vary significantly from one firm to another.

Law firms often have complex systems in place to determine how partners are compensated for their work. These compensation plans can vary widely from firm to firm and can be based on a variety of factors, such as the partner’s client origination, the partner’s billable hours, and the overall profits they generate for the firm.

Elements of Partner Compensation

Law firm partner compensation generally consists of two main components: salary and a share of the profits. The salary component is typically a fixed amount that is paid to the partner on a regular basis, while the profit share is a percentage of the firm’s profits that is allocated to the partner based on their contributions to the firm.

The specific breakdown of these two components can vary significantly from one firm to another. Some firms may have a higher salary component and a lower profit share, while others may have a higher profit share and a lower salary. In general, firms with a higher profit share tend to have a more hierarchical structure, with partners at the top receiving a larger share of the profits.

Criteria for the “Right” Model

Whatever the plan, it should do more than split the pie: it should reinforce the behaviors and efforts the firm desires from its attorneys. When considering whether to make a change to the firm’s current plan, partners should consider whether the current system supports the firm’s goals and rewards partners appropriately. For example, the plan should:

• Provide the proper incentives and motivations to support firm’s core values and goals.
• Reward mutually beneficial effort and discourage actions that hurt the whole.
• Be equitable enough that it reduces partner dissatisfaction and can be perceived as fair by the partners.
• Retain the right people and allow those who don’t fit to move on.

What Gets Measured Gets Attention

With the above criteria in mind, some metrics partners may want to consider as they look at how they want to split firm profits include:

• Level of support the partner provides to the realization of firm goals;
• Quality service / client satisfaction;
• Contribution to the success of others / delegation and supervision, resulting in associate retention;
• Contributions to business development;
• Personal skill development / partner satisfaction, resulting in partner retention and lateral recruitment.

Types of Compensation Plans

• Parity: Profits are split equally.
• Lockstep: Compensation is based on tenure.
• Subjective: Compensation is set by executive committee based on subjective criteria.
• Formula: Often “eat what you kill.”
• Hybrid: Combination of any of the above plan types.

Parity (Equal Partnership)

Pros:

• Supports teamwork
• Shares risks of economic cycles
• Makes sure it is not just about the hard data

Cons:

• Does not reward stellar performers
• Does not typically work beyond the early years of the firm
• Inequity causes friction among partners

Lockstep

Pros:

• Rewards loyalty
• Facilitates teamwork and collegiality
• Eliminates conflict

Cons

• Does not reward stellar performers
• Often causes attorney turnover
• May tend to reward complacency

Subjective

Pros

• Can work well if committee is made up of fair minded individuals

Cons

• Tends to fail as larger numbers of attorneys mature in their rainmaking ability

Formula / “Eat What You Kill”

Pros

• Rewards partners for the work they bring in and handle
• Fosters retention of high producers

Cons

• Creates silos / poor culture
• Discourages collaboration
• Does not encourage cross-selling

Hybrid

Pros

• Takes into account multiple factors
• Allows credit to be given for positive firm-level contributions

Cons

• Must take care not to make it too complicated

Things to Consider in Choosing the Formula for Your Firm

What Gets Measured Gets Attention

• What firm values and goals do you wish to achieve?
• Do you want to encourage a sense of firm or competitive silos?

Impact of Having the Wrong Model

• Perceived inequities can result in firm breakups and partner departures
• Goals specific to the firm will not be met

Law firm partner compensation can be complex and varied, with a number of factors influencing the specific details of a partner’s compensation package. Ultimately, the best law firm partner compensation plan will depend on the specific needs and goals of the firm. It is important for law firms to carefully consider their options and choose a plan that aligns with their business objectives and rewards partners for their contributions to the firm.

Wondering How to Begin the Conversation?

We provide consulting services to law firms to assist in the delicate conversation regarding partner compensation. Schedule a free consultation, and ask about our partner survey that has helped other firms to start the conversation in an objective and productive way.

The Issues Component

“Problems are like mushrooms. When it’s dark and rainy, they multiply. Under bright light, they diminish.” Gino Wickman

The key to addressing and correcting the issues that are keeping your organization from successfully reaching your goals is a safe environment that promotes open and honest communication. If your organization does not currently have a culture that supports this, you can get there. Encourage it. Encourage everyone to respectfully communicate their concerns and ideas for solutions. The more your team sees their peers openly sharing in a safe environment, the more others will follow.

When your team is sharing open and honest communication, your Issues List can become a tool for keeping all of your issues out in the open and organized in one place.

Three Types of Issues Lists in the EOS System

Long-term issues. These are items that cannot be tackled in a week or two but need to be documented so that they are not forgotten. Issues that can be addressed in the immediate quarter are placed on a quarterly list referred to as Rocks in EOS. Quarterly Rocks are assigned to individuals so that there is accountability assigned for seeing that these issues are addressed. Issues that are farther out in your planning can be placed on your V/TO so that they can be addressed in a future quarter when the timing is right.

Weekly Leadership Team Issues List. These items are to be addressed more immediately and are discussed during your weekly leadership team meetings. These are items that need to be resolved at the highest level.

The Departmental Issues List. These issues can be addressed at a departmental level v. the need for your highest level of leadership to address them. They are specific to a department in your organization and can be handled at that level, removing the need for leadership to have them on their immediate radar.

The Issues Solving Track

Identify the real issue. Often the stated problem is not the real issue (it’s not about the nail). By discussing the issue in your leadership or department meeting, you can dig down to the root of the problem. For example, you may have a stated issue that client Smith Corporation is a terrible client who never pays their bills on time. But as you investigate the problem more thoroughly, you discover that Smith Corporation has specific billing guidelines that are not being properly followed by your billing department, resulting in rejected invoices that must be corrected and resubmitted.

Discuss. This is where it is most important for everyone to be able to share in honest, respectful communication. Consider the above example. If your billing manager is someone who some individuals on your team want to protect, it is important that your team members know that it is safe for them to share concerns about that individual’s performance. Understand that it is okay to have healthy conflict in order for the best solution to come to light. It may be that your billing person in this example has too much on their plate, keeping them from successful performance through no fault of their own. Without open and honest discussion, you cannot find a solution to your issue.

Solve. The solve step is a conclusion or solution that typically becomes an action item for someone to do. This action item ends up on the To Do list so that it is accomplished with accountability assigned, and the issue gets resolved. In the example discussed here, your firm administrator may be assigned to work with your billing person to identify where they need help.

Keys to Successful Issue Solving

You cannot always rule by consensus. Every team needs a quarterback. Consensus management does not work. When you are unable to come to a decision where everyone agrees, someone has to make the final decision. Once the final decision has been made, you must present a united front moving forward.

Be strong. The right decision is not always easy to implement. You must be willing to make the tough decisions.

Be decisive. The inability to make a decision can be your worst enemy. Successful businesses share the quality of making decisions quickly and changing them slowly.

Do not rely on secondhand information. You cannot solve an issue involving multiple people without all of the parties present. If they are not currently available, schedule a time when they are.

Fight for the greater good. Focus on the vision for the organization. Decisions cannot be made for the benefit of one individual over the benefit of the organization as a whole.

Do not try to solve everything. Prioritize your issues. You will never solve them all. Solve the most important issue first, and then move on to the next.

Live with it, end it, or change it. When you have an issue, you have to decide which of these decisions you will make. If you are unhappy about something, end it or change it. If you are unwilling or unable to do either of these things, at least right now, then live with it and stop complaining. Complaining is a waste of time and gets you nowhere.

Take a shot. Propose a solution. Don’t wait around for someone else to do it. This is something that should be instilled in your culture. I have always had the policy that if someone comes to me with a problem or complaint, they should also be prepared with a suggested solution.

By having a protocol for openly and systematically identifying, addressing, and solving issues in your firm, you can move forward with meeting your vision and goals. In a future article, we will discuss how the L-10 meeting protocol in the EOS system will help you to address and resolve your issues in an efficient and successful way.

For assistance with your strategic planning, contact Suzette@LawPracticeEdge.com. For more information on the EOS system, check out Gino Wickman’s book Traction.

The People Component

As Jim Collins taught us in Good to Great, it all comes down to getting the right people into the right seats. We all know this to be true, but the EOS model helps us to put it in practice.

How do you know who the right people are for your firm? As part of the V/TO exercise we reviewed in Part 2of this series, we identified the need to define your firm’s core values. Having gone through this exercise, you can now easily identify the right people – they are the individuals who share your company’s core values. They thrive in your culture and make your organization a better place to be.

Now, how about those seats?

The Accountability Chart

Part of the EOS process is the important exercise of creating an accountability chart (what most of us refer to as an org chart, but with more thoroughly defined information). By identifying the different positions in your firm and what skills and traits are necessary to be successful in those positions, you are able to objectively determine whether an individual is in the right seat for their skill set and strengths.

Right Person, Wrong Seat

You may often find that you have the right person in your firm, but they are in the wrong seat. They are a pleasure to work with. They meet all of your firm’s core values. But despite every best effort, they are just not successful in their current position. They can’t be left to their own devices to work independently due to continuing errors, missed deadlines, etc. They are a drain on your resources because they require so much attention. You have to remember that decisions must be made for the greater good – the firm – above the welfare of any one individual. If you can find a position in your firm that plays to their strengths, move them. If you can’t, you need to stop preventing them from finding a place where they can be successful and respectfully release them.

Wrong Person, Right Seat

You will also often find that you have the wrong person in the right seat. They are stellar performers when it comes to their work product. They bill 2000+ hours and seem to make the firm a lot of money. Unfortunately, their behavior is such a poor fit in your culture that they breed discontent throughout the firm. You may think they are making you a lot of money with all of those billed hours, but you cannot quantify the lost productivity in others due to the constant frustrations they cause. They may also be a cancer that will spread to others in your firm. Eventually, if you don’t release the wrong person, the right people will leave to work where they can be with individuals who are a cultural fit.

Do They GWC Their Position?

Sometimes you have individuals who, on paper, should be successful in their position. If you are finding it difficult to pinpoint where the problem is, ask yourself these questions: Do they Get It? Do they Want It? Do they have the Capacity to Do It? It isn’t enough to have the skills necessary to perform successfully in a position. An individual needs to really get it – not just what they must do, but why it is important. They also need to want it. I once worked with an attorney who should have been a perfect employee. She was smart, pleasant, and checked all of the initial boxes. The problem was, she didn’t want it.

Hire Smart

Once you have the right people in the right seats, it is important to use your core values and accountability chart as guides when hiring new employees. You should hire, fire, review, reward, and recognize based on those core values. You will find that your hiring success ratio will increase if you evaluate applicants’ core values before their skills.

When you have successfully fit the right people into the right seats, you will find that all of the pieces have come together to create a cohesive and successful team.

For assistance with your strategic planning, contact Suzette@LawPracticeEdge.com. For more information on the EOS system, check out Gino Wickman’s book Traction.

Traditional Strategic Planning v. EOS Model

I have been receiving many inquiries regarding help with Strategic Planning recently. Most, if not all, business people are familiar with the phrase. They have likely even gone through the process once or twice – or more. For attorneys, while the concept is not new, putting the concept into practice may be.

The traditional strategic planning model has many iterations, but most look something like this:

• Vision and Mission. Create a vision for what the organization should look like and a mission for what we are hoping to accomplish.
• Objectives. Define the results we are aiming for. Identify short- and long-term goals.
• Strategy. Come up with a plan for how we are going to meet our objectives. A SWOT analysis (identifying Strengths, Weaknesses, Opportunities, and Threats) may be involved here.
• Approach. Figure out how we will execute the long-term plan.
• Tactics. Define smaller, focused action plans that will support the overall strategy.

A lot of investment is put into strategic planning meetings. Multi-day leadership retreats are planned around the process. In law firms this often means days of lost billable hours for several partners in addition to the travel and other expenses tied to the retreat. The meeting can be a great investment in building collaboration, identifying the items mentioned above, and making everyone feel positive about being on the same page.

And then … we all return to our busy practices and the street paved with those good intentions that we left the retreat with leads straight to … well, you know the rest.

It isn’t anyone’s fault. Everyone at the retreat really did have good intentions, and they really want to work the plan that they planned so hard to create. It is just really, really hard to keep the momentum going and keep things from falling by the wayside when we are all so very busy just keeping our heads above water with client demands, employee issues, billable hours goals, mentoring, training, etc.

That Doesn’t Mean You Should Give Up

There is a way to create a strategic plan that you can efficiently stay on top of. Enter Gino Wickman and his amazing book, Traction Get a Grip on Your Business. I was fortunate to work with a firm who worked through this process several years ago, and if Gino’s protocol is followed, it works.

Not Sure You Even Need Strategic Planning?

Maybe you don’t – maybe everything in your firm is working swimmingly. You have all of the right people in the right seats, everyone is meeting your expectations, your clients are happy and your bank account is full. If that is the case, maybe you are right – maybe you don’t need it. However if you are experiencing any of the common frustrations below that Gino outlines in his book, you may want to consider it:

• Lack of control. You have no control over your time, and instead of controlling your business, your business is controlling you.
• People. You have employees and clients who are frustrating you. They don’t seem to understand your expectations, and you are not all on the same page.
• Profit. There isn’t enough of it. You are busy and you know you should be seeing a lot more financial reward for all of the work you are doing.
• Ceiling. You have stopped growing, and no matter what you do, you can’t seem to get to the next level.
• Nothing is working. No matter what changes you have tried to address the issues you are experiencing, nothing seems to help, at least not for long.

One more that I will add: You have spent endless resources on strategic planning, and no matter how great it seems at the end of the process, you don’t end up with the results you were expecting.

If you are experiencing any of these issues, you may want to consider the EOS system (EOS stands for Entrepreneurial Operating System). A form of strategic planning in many ways, what is different about Gino’s system is that he provides the tools you need to not just develop a great plan but also work the plan so that you see the results you were intending.

In the following articles in this series, we will cover the elements of the EOS System and how it works:

• Vision/Traction Organizer (V/TO). Much like the traditional strategic planning protocol, this will help everyone in the firm focus on rowing the boat in the same direction, identifying many items that make your firm unique and defining your organization’s sweet spot to keep you focused in the areas in which you most excel.
• People. We all know we want “A” players, right? But what does that mean for your organization? This process will help you to identify what characteristics you need to see in your organization and its different positions in order to have the right people in the right seats.
• Data. Think KPIs (Key Performance Indicators). EOS helps you to create a scorecard of KPIs that will help you to efficiently keep your fingers on the pulse of your organization on a weekly basis.
• Issues. Think “weaknesses” and “threats” from the SWOT analysis – what elements are getting in the way of getting things accomplished? What does your management team need to discuss in order to resolve these issues?
• Process. Your way of doing business. For example, have you developed a database of institutional knowledge for your firm? If you haven’t, there are many issues that need to be addressed around this topic alone.
• Traction. Traction refers to your organization gaining traction by having systems in place to move the ball forward. There are two disciplines to be developed to assist in this area: Rocks, which are clear 90-day priorities identified to keep the organization moving toward your short- and long-term goals, and implementing a Meeting Pulse at differing levels of your organization. Traction and EOS will help you to learn how to use the Rocks and Meeting Pulse in an efficient and effective way so that you are moving toward your goals without wasting time (aka “death by meeting”).

As we work through this series of articles, I am confident that, like me, you will see the enormous value this system can bring to your organization in not only developing but also successfully implementing a Strategic Plan.

For assistance with your strategic planning, contact Suzette@LawPracticeEdge.com. For more information on the EOS system, check out Gino Wickman’s book Traction.