February 2, 2006
Out of Synch Law Firm Compensation Plans
I spent the last three days (LegalTech NY) talking to a lot of attorneys and their consultants. Times are pretty good, but many law firms have hit a ceiling in per-partner income that they can’t seem to break through.
Here is the reality. If you depend on your own productivity, fee revenues in most locations will max out in the range of $300,000 to $400,000. What you take home as personal income will be about half of that.
So how do mid-sized law firms push per-partner income into the half million plus range? The great thing about the law practice business is that the answer to that question is pretty well known. You have to make fee revenues depend on something other that the partner’s own physical effort.
- Contingency billing arrangements shift financial success to accomplishments verses physical effort.
- Flat fee arrangements let you leverage off of your efficiency including technology and process.
- Leverage lets you eat what others have killed rather than depending on your efforts alone.
Most mid-size firms have some revenues derived from contingency and flat fee work, but the majority of their revenue is still dependent on the billable hour. Leverage is the prevailing strategy for making per-partner income less dependent on the physical effort of the partners.
Unfortunately, partner compensation plans tend to be out of synch with this reality. Too many law firms place major emphasis on each partner’s individual production rather than on the care and feeding of associates. If leverage is the key strategy for driving per-partner income, then rain making, recruiting, supervision and mentoring of associates, project management and firm management have greater importance than maximizing individual partner’s production. Partner productivity must be at a hygienic level rather than an exhausting level. Individual partner productive levels must leave time for the important team work aspects of the partner’s role in the modern law practice. Compensation plans should support the leverage strategy, not fight it.
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Filed under Compensation by Tom Collins