COMPENSATION MODELS: NEGOTIATING A FAIR DEAL



Times have changed in law firms and so, too, compensation packages on all levels of attorneys including first year associates. Previously, an associate would be happy with a straight base salary, and a bonus at year’s end depending on the profits of the firm. The new compensation models include and reward behaviors, skills and pay for performance, all of which are intended to achieve the strategic goals of the firm.


Many attorneys on the partner levels have been adverse to change, and are resistant to changing a compensation model that has worked for them for many years. Although it may be difficult for partners to agree to a compensation model which pays them less is a good thing, they, too, have come to realize that the prior compensation models may no longer be in the best interests of the firm.


Today, there are many more lawyers all competing for the same client. Client loyalty is disappearing and the lengths to which law firms will go seem endless. Now, your firm’s clients are you competitors’ audience. Lawyers today need to exert more time and effort to sustain client loyalty and it is not easy. Doing a great job is no longer enough and clients will not hesitate to retain a new law firm if they meet their needs and their pocketbook. This has, in many ways, turned the legal profession into a free for all where attorneys will do whatever it takes to get new clients and keep the money coming in.


Attorneys can generate clients and attorneys’ fees by either originating work regardless of who does it, or by doing the work regardless of who originates it. It is that simple. And until recently, many firms favored the working timekeeper over the rainmaker. In fact, many firms did not even keep track of work origination. But today, the work originators or rainmakers, if you will, are sought after by firms regardless of whether the stigma of being a job hopper is present or not. This has put the rainmaker lawyers in a position of strength and enable them to seek a higher level of compensation.


Pay for performance compensation allows a firm to achieve its goals and to have a compensation model which rewards performance that achieves a firm’s goals. This compensation system allows for the success of the firm by allowing all lawyers to contribute to the success of the firm and its profitability, and rewards those who have made the most contributions to the firm’s bottom line.


This pay for performance compensation is separate from partner accountability and the minimal contributions that partners are expected to make. Partners are no longer paid for their non-performance where in previous years firms would look at averages of two or three years past. Partners are no longer allowed to coast into their retirement.


Today’s billing software gives us the ability to look at each case/file/client and measure performance. We can ask the question how much did the firm earn from this client, matter, practice area, associate or partner? Is this a worthwhile client relationship? If not, what can we do to make it more profitable?


It is often a daunting undertaking to look at all these numbers and determine what the bottom line is in terms of gross profits to the firm, expenses, net profits and distribution to those who contributed to the bottom line. You do not want to undervalue the contributions of any attorney, or overvalue their worth and what they bring to the table in dollars and sense. And remember, again, attorneys do not have the loyalty they had in years gone by and won’t stick with the firm even if they aren’t being adequately compensated. There are so many compensation models depending on the practice. It is a balancing act for sure and the firm does not want to be on the short end of the stick.


If you need help assessing your firm’s compensation model with a view towards changing your compensation including pay for performance, please contact me at 813-340-9569. I am Liz Miller, Law Practice Management Consultant with over 30 years' legal experience. I can make your firm more efficient, cost-effective and profitable.


Check out my website at: www.fromlawyertolawfirm.com.









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