Compensation for Partners

This time of year, when bonuses and compensation issues are at the forefront of discussion, causes much angst for many lawyers, especially newer partners who have not yet had a chance to develop a solid track record for themselves within the firm.

Recently, I had a discussion with a client on this very topic. The catalyst for the conversation was the increased compensation for some lawyers and not for others. There are many resources for determining compensation models, one of which is the American Bar Association’s Law Practice Management Section’s publications.

With variations on the theme, there appear to be four models:
•    Compensation based on historical results, with no “sun setting” and credit being given irrespective of whether the origination occurred before or after gaining partnership
•    Compensation based on this year’s results, an “eat-what-you-kill” mentality
•    Compensation based on this year’s results coupled with marketing and other firm governance efforts
•    Compensation based on your year of graduation, such that a “lock-step” approach is taken based on one’s seniority in the firm.

Irrespective of the model chosen, there must be a perception of fairness in the evaluation process if the firm wants to reduce departures and turnover of its legal talent. While this may not be a goal for many law firms, it should be. For each lawyer that leaves the firm, there is a bottom-line cost to the firm estimated to be between $200,000 and $400,000!

Also, as noted elsewhere, law firms will have an increasingly difficult time retaining legal talent, both at the associate and the partner level. Placing compensation standards that are perceived to be unfair into the mix will only make their ability to retain lawyers more difficult.

A few large law firms have been successful in removing this conversation from the table; no one knows what their colleagues earn, only the very few involved in setting the compensation. As long as their earnings are perceived to be fair and appropriate, these lawyers are satisfied and don’t worry about what others in the firm earn. Other law firms have a “blood bath” every year and list the earnings of everyone; then they have an appeal process which includes comparisons among lawyers that can be quite disruptive to the harmony of the law firm.

There is no magic answer to this dilemma. But one thing is for sure, in my opinion. Compensation issues can be very disruptive. And, the law firm that works as a team in a harmonious and collaborative environment will survive over multiple generations, will be a more pleasant environment in which to work and will be more profitable over the long term. Thus, this issue must be discussed openly and resolved to the satisfaction of the vast majority of its members to achieve harmony and collaboration.

Categorized in: Management