Strategic Planning Series Part 7:

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.