Key Tips for Improving Your Law Firm Partner Compensation Model
By Adrian Aguilera
Researching and adopting a fair and profitable law firm compensation model can be overwhelming. Thankfully, with a few key strategies and goals in mind, you can simplify the profit sharing process. The best revenue sharing models award top performers while issuing compensation boosts for meeting/exceeding team goals and company objectives. This overview covers the pros and cons of two of the most common law firm partner compensation models, as well as a few strategies your firm can implement into existing systems to improve motivation and overall productivity.
How Are Law Firm Partners Compensated?
Law firm equity partners are compensated from a variety of factors. This includes the law firm’s billing approach and origination of the client—which forms the basis of good law firm compensation models. These models can range from a system that compensates entirely from revenue and client-origination performance formulas to an evenly-divided (pure lockstep) model. Although there isn’t any “best” formula, the most effective models generally blend the two extremes.
Does Every Law Firm Need a Compensation Model?
A firm needs some form of a road map that determines the compensation, promotion, and law firm bonus awarded to each partner and staff member. A formulaic system that has algorithmic charts isn’t necessarily needed; however, every firm needs a plan on how each partner (and non-attorney staff) is properly compensated. This is one of the main drivers toward boosting company revenue, awarding top performers, delighting clients, and fostering high staff satisfaction and low turnover.
Common Partner Compensation Models
Formula-Based Individual Compensation Systems
Often referred to as the “eat what you kill” (EWYK) system, this revenue-sharing model is built around formulas based on individual performance. Under this structure, bonuses and the salary of law firm partners are issued solely on client billing, client conversions and/or business development numbers (such as profits per partner). To that end, each partner is essentially responsible (and paid) based on how many new clients they bring in and service—or sell to other partners (for profit sharing). Every partner is also solely responsible for their share of firm overhead, marketing, as well as the salary of their secretaries/assistants.
Pros of this system typically include:
- Full control to only hire profitable juniors that boost individual “profits per partner.”
- The ability to generate a high income based on new clients and client collection performance.
- An avenue for high law firm growth (especially for smaller firms).
Cons of this system typically include:
- A lack of recognition for non-client tasks such as staff training and research/adoption of law firm tools and systems.
- Burnout due to a focus that’s mainly on performance.
- An overly competitive environment that can boost workplace silos and affect productivity in the long run.
Lockstep Systems
The lockstep revenue-sharing model focuses on servicing clients as one large team rather than as an individual partner. Under this system, each partner is part of a collective “mutual fund,” which gets evenly split based on seniority—rather than productivity only. As a result, each partner focuses more on the best interests of the firm, rather than the individual.
Pros of this system typically include:
- A team-based approach from all partners as one larger team, which promotes full support and a more positive, nurturing culture.
- More of a focus on providing superb client service rather than a focus on constantly pumping in new clients.
- A more even spread of risks and benefits across all law firm partners.
Cons of this system typically include:
- A lack of incentive/awards for top performers, which can lead to a struggle of hiring/retaining top talent.
- A lack of disciplinary action for under performers, which can negatively influence productivity.
- A culture that may result in complacency, which can affect the adoption of newer/more efficient ideas and systems.
Strategies for Enhancing Law Firm Partner Compensation Models
It can be costly and/or time-consuming to completely alter your current law firm’s compensation model. If you use a lockstep, individual formula-based system, a hybrid approach of the two, or a more niche system, you can implement four easy strategies for enhancing your existing model. These strategies are also a great foundation if your firm is building a new compensation model from scratch.
1. Highlight your law firm’s mission and values
Develop a clear vision and mission statement with core values and goals. From there, partners can issue a law firm bonus based on how well the team implements the mission of the law firm. This can help quench an overly competitive individual model, while also awarding a level of performance from a team-based lockstep system.
2. Factor in performance awards for great client service
New client business should never compromise excellent client service. After all, superb service translates into a higher likelihood of positive reviews and referrals. You can implement this approach by factoring in bonuses and raises based on the number of positive public reviews, net promoter scores, and referrals.
3. Issue fair market-value salaries
Does your current system provide a fair salary and bonuses based on the current market? The salary of law firm partners and staff should reflect the compensation of the position, your firm’s location, as well as the practice area.
4. Schedule team brainstorming meetings
This strategy is mainly for an individual formula-based system. Your firm can counter potential work silos by conducting a business-wide meeting once per week. Each meeting can have a theme such as “improving payment collections” or “providing better client service.” During the meeting, each partner and team member can share two to three challenges they are facing based on the theme. Then, the group as a whole can share some solutions that have worked for their individual teams. This can improve work silos and even become a factor for bonuses (based on participation).
Integrate Case-Management Software for Your Firm
Even with an effective revenue-sharing model, it can be difficult to efficiently measure your law firm’s performance. Case management software makes it easy to track billable time, convert new leads, and effectively/clearly communicate with clients. The software also includes financial reporting to monitor aging invoices, gain insight on payments billed and collected, track active payment plans, and more.
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