April 15, 2008
How To Compensate A Rainmaking/Investor "Muted" Partner?
A reader emailed me with a question related to the compensation of a non-practicing equity partner whose responsibilities include only the investment of capital in the firm and bringing in new clients. The firm has a niche practice and is looking to expand. Their plans require more capital than the existing partnership can manage. They are in a position to bring in another partner who will be responsible for infusing additional capital in the firm. The partner will also do some rainmaking. The new partner will not be responsible for any management or production and will not be expected to manage any of the clients in which he brings.
Because of the rainmaking responsibilities, I wouldn't classify the partner as a "silent partner". However, since the partner won't participate in the day to day management of the firm nor will be responsible for any production, it may be better to classify him as "muted".
I asked several attorneys I knew and didn't get very good answers. Thus I am taking the question to More Partner Income readers. What ways would you suggest this firm compensate an equity partner whose responsibilities are only investment in the firm and rainmaking?
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Filed under Compensation by Brian J. Ritchey
Comments on How To Compensate A Rainmaking/Investor "Muted" Partner? »
gail.henderson @ 11:51 am
Brian,
How about dividends + an origination credit bonus structure as a solution for the muted partner? This ties their earnings directly to their investment & rainmaking activities for fair compensation. Combine this with an expense account or expense reimbursement plan for wooing activities and you're set.
Speaking of expenses, why not track all of these expenses in the billing system as non-billable items. Place them on an account in the Attorney's name…then when the action results in an account, transfer that expense to the appropriate account (not to be billed - but simply to be linked with the work that was generated.)
Could be a good way to track all of the activity of the muted partner for accounting, profitability and compensation. Your thoughts?
Brian J. Ritchey @ 12:26 pm
Excellent suggestions Gail.