Which Compensation Model is Best for Your Firm?

Author: Erica Feher | November 22, 2013

In today’s highly-competitive legal market place, there is more pressure than ever on attorneys to develop their own business. Gone are the days where work was handed down from a few key rainmakers to associates. No matter how junior an attorney is at a firm, they hold the same responsibility to develop and land new clients.

Law firm management often claims that they are committed to fostering business development within the firm; however, firm compensation models rarely reflect that commitment. Oftentimes, misaligned compensation models promote referring work outside the firm, hoarding new client work and even disloyalty.

Firms should consider what compensation incentives can potentially drive revenue while encouraging business development among attorneys. I’ve spoken to several law firms that strongly believe that while business development is not lawyering, it’s part of the job nonetheless. How else will you perform your work if you don’t have any clients?

Below, I’ve outlined a few considerations from the Legal Marketing Association’s Southern California Chapter program, “Getting Compensation to Drive Revenue” presented by Jay Westcott with Westcott Legal Consulting LLC.

  • What type of compensation model works best for your firm? There are different systems to choose from, including:
    • Compensation committee system – A subjective committee determines the criteria for each partner.
    • Lockstep system – This system is based on seniority alone and encourages teamwork.
    • Formula system – Statistics drives incentives and eliminate subjectivity.
    • Proprietary system -A small group of “owners” allocate compensation.
  • Difficulty of recognizing business generation – It’s likely that new business was originated by more than one person; Consider who should receive credit for supervising the case, billing the case, etc., in addition to the originator.
  • Reward results or efforts? There’s obviously a major difference between landing a new piece of business and networking every night of the week, but should attorneys be compensated for their efforts to develop that work? Many firms are now structuring a separate bonus pool to recognize these efforts.
  • Don’t rely on compensation alone to drive business development. Instead, focus on cultivating a culture around these efforts. There should be a team approach to create a solid reputation and stability for the firm, and not every man for himself.

As the legal climate continues to change at a rate law firms are constantly trying to keep abreast with, law firms should carefully review the compensation models in place to determine if and how they can be modified to drive more revenue.

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