From eat-what-you-kill to share-and-share-alike, there are myriad ways to structure compensation in your practice.
Eat-what-you-kill is common in small firms and in space-sharing arrangements, where lawyers contribute to common expenses but otherwise keep what they bring in.
Other methods like equity/non-equity partnerships and Lockstep Systems divide the spoils in different ways.
Whatever system you use, three things should always be top of mind:
- Firm culture
“Every system should be unique to the strategic vision of your law firm,” says author and business consultant Brenda A. Barnes, a national authority on Law Firm Compensation. “Compensation systems play a significant role in influencing a law firm’s culture. The benchmarks a firm uses to determine compensation not only nod to the differences in the partners’ financial rewards, but they also signal to a partner their value to the firm.”
Do you have a Law Firm Compensation Plan? Without one, you’re hampering the success of your practice. An effective and equitable pay structure will increase firm productivity, reduce turnover and boost office morale. It will help you recruit and retain the highest caliber of legal talent. And it will allow you to provide consistently excellent client service. Join us on September 27 for the CLE webinar, Creating an Attorney Compensation Plan That Will Build Firm Culture and Attract Top Talent, and learn how to design and develop a compensation plan that’s right for your practice – whether you’re building one from scratch or updating an existing plan. This free, one-hour CLE will be taught by two of the country’s top authorities on law firm economics, Brenda A. Barnes and Camille Stell, co-authors of the book RESPECT: An Insight to Attorney Compensation. Don’t miss this latest installment in Alta Pro’s highly popular, cutting-edge CLE webinar series. Register now!
A Glossary of Key Compensation Terms
Equity partners. Equity partners are law firm owners, and their pay is from their share of the firm’s profits in a given year. Some law firm formation includes shareholders rather than partners.
Non-equity partners. Non-equity partners are not owners, and they are not paid a salary. This is a distinction that is usually not visible outside the law firm.
Equal partnerships. This system is typically used by small law firms. The partners agree to share in the profits equally or equally within defined groups.
Incentive-based systems. In the 1940s, the Boston law firm Hale and Dorr is said to have created the first incentive-based compensation plan, The firm identified lawyers in three categories. Finder – The lawyer as rainmaker who brings in the client. Minder – The lawyer who is responsible for managing the client relationship. Grinder – The lawyer, often the associate, who is responsible for doing the client work.
Eat-What-You-Kill. This system is common in small law firms. These firms sometimes operate as a collective of solo lawyers who share common space and employees with each lawyer paying their share of the overhead cost.
Lockstep Systems. The Cravath System relied on recruiting the best law school graduates, training those associates by the best lawyers, and compensating them well. This was at a time when most law firm associates were only paid for work they brought to the law firm. Cravath’s idea resulted in law school graduates who became excellent lawyers and as they rose through the ranks, they would remain loyal to the firm that had invested in them. This system was adopted by most Biglaw firms.
Modified Lockstep Systems. Salaries are not capped by seniority, but merit contributions allow firms to offer top salaries.
SOURCE: RESPECT: An Insight to Attorney Compensation Plans, by Brenda Barnes and Camille Stell (with permission of the authors)
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