How Do Law Firm Compensation Models Work?
By Timothy Lynch Esq., Offit Kurman
How is a typical lawyer paid? Trick question: there is no such thing as a typical lawyer. Accordingly, there is also no true standard model for how law firms dole out compensation and rewards. Numerous factors, including region, size, structure, leadership, tenure, billing practices and practice areas, determine a firm’s financial structure, which is why practitioners—even those working in the same firm, in the same practice area with the same size book of business —sometimes take home vastly different earnings.
That said, there are several commonalities firms consider when establishing a payment framework:
Tenure and rank form perhaps the most common basis for rewards. Traditionally, the longer a partner stays with the firm, the greater their share of the profits grows. While a system that emphasizes seniority encourages long-term loyalty to the firm, it can have adverse effects on veterans and newcomers alike—both of whom are less motivated to perform above and beyond without an incentive to do so.
Performance-related pay can be a contentious issue in many firms because merit based pay generally focuses on financial performance instead of longevity. . Firms need be careful to construct merit based pay so that the culture of the firm does not become an “eat what you kill” system. This approach may stimulate hard work and increase individuals’ books of business, but without an incentive for cooperation in place, the firm may suffer overall due to resources spread too thin between competing attorneys.
In many law firms, attorneys receive bonuses with little to no information how the bonus was determined. Lawyers refer to this as the “black box” method of compensation. The decision generally sits with the firm leadership. Critics of subjective systems claim unfairness in the form of preferential treatment or favoritism. Equally problematic are the ways in which subjective decisions undermine communication between management and producers: the question of who gets to make the decisions and why often pits the two groups at odds.
The Offit Kurman Difference
At Offit Kurman, we have developed a unique model that rewards individual contributions and supports cooperative cross-selling between attorneys. For every client brought into the firm, compensation is split equally between the originator and the producer. That means that high-capacity sellers and those whose main focus is achieving client goals can both concentrate on what they do best, without spending energy negotiating or competing with fellow practitioners in-house. We do not cap compensation, nor do we set artificial billable hour targets for the attorneys who are focused on originating clients.
Offit Kurman pays its attorneys base pay (not a draw) and has a merit based bonus system that encourages (and rewards) cross selling amongst its attorneys. Because of this platform, we are able to address every client’s need across a diverse array of practices. Lawyers who have joined Offit Kurman have in some cases as much as tripled their profit margin, thanks to reduced overhead and a network of specialized attorneys and accomplished support staff.
Click here to learn more about our compensation model and the many benefits of joining Offit Kurman.
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About Tim Lynch
Mr. Lynch is a Business Litigation and International Practice attorney with Offit Kurman. He focusses his practice on complex civil litigation matters, serves as outside general counsel to many owner managed businesses and entrepreneurs, and serves as a corporate advisor to senior level executives, physicians and professional athletes. Mr. Lynch also serves as a board member for several privately owned companies advising on growth and management issues.
About Offit Kurman
Offit Kurman Attorneys At Law is a dynamic legal services provider assisting clients throughout the mid-Atlantic region. Our firm is well positioned to meet the legal needs of dynamic businesses and the people who own and operate them.
The attorneys at Offit Kurman have made it their mission to be your most trusted legal advisors, the professionals who help you maximize and protect your business value and individual wealth. In every interaction, we consistently strive to earn and maintain your trust, further your objectives, and help you achieve your goals in an efficient manner.
published: September 2014