May 30, 2006
Why Law Partners Hoard Work?
Hard work and long hours limit the income of law firm partners. How can that be? While it may appear counterintuitive, it is really simple. The owners of a service business make more money when they can leverage off of the work of others. In order to do that, you have to have the work for them to do. You have to give them the work to do. And, you have to find, hire, and train them.
A new survey of mid-sized law firms is confirming what we frequently found when working with individual midsized law firms. Partners are logging more billable hours than their associates. Law firm partners are hoarding work rather than handing it off to others. Rather than bringing in new business or training others, they are piling up their own billable hours.
It gets worse. Not only are many mid-sized firms not fully utilizing their existing associates, but partners are not investing enough time in business development or recruiting and mentoring talent. Where AmLaw 200 firms have about three associates for every partner, midsized firms average only a 1 -1 ratio.
The result is what you would expect. Midsized firm partners make less income than their counterparts in larger law firms.
If working long and hard hours actually reduces income, why do partners do it? Why do they hoard the work?
Why shouldn’t they? If a partner’s distribution is based largely on their individual production, what else would one expect?
It is time to rethink partner compensation in the midsized firm. Consider rewarding partners for nothing more than a hygienic level of production. Additional rewards would then come from bringing in new business and handing off work to others. Consider the merits of a compensation system that includes the following four elements:
1. Personal production up to a maximum hygienic level
2. Bringing in new business (based on fee revenue for the initial eighteen-month period)
3. Associate billings on clients’ work under the partner’s control
4. A subjective element based on relative performance in such categories as:
- Recruiting
- Mentoring
- Associate survey
- Administrative staff survey
- Public relations
- Playing by the rules
- Client satisfaction surveys
- Etc.
Why limit the new business reward to eighteen months? The objective is to keep generating new business, not to compensate for revenue the firm already has. Compensation for retaining existing business is earned by performing as the control partner responsible for work supervision and the client relationship. A fifth element can be added, if needed, to encourage a partner to hand off control to a new or different partner. Similar to origination, the partner handing off work could get origination equivalent credit for the first 12 to 18 months following hand off.
By limiting earnings for personal production to a “hygienic” level, partners will no longer be incensed to pile up billable hours at the expense of making rain and devloping the skills of their associates. The short eighteen-month origination credit period keeps the pressure on “new” business development rather than continuing compensation for prior successes. Origination credit under the above approach is never handed off. Once someone has been paid for new business, it becomes property of the house. By basing compensation on associates' fees, the emphasis is shifted from personal production to developing and using the professional skills of associates.
The firm gets a bonus out of the new approach. The firm gains a farm team out of which the future partners and leaders of the firm will come.
Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.
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Filed under Compensation by Tom Collins