Paying and Getting Paid: Effective Lawyer Compensation Schemes
Money isn't the only reason attorneys show up for work, but it's at least one of the main motivators. You may have joined the legal profession out of a sense of justice, but few lawyers' Atticus Finch dreams alone can pull them through another day of motion practice. That's the job of cash.
Compensation matters. But how you compensate your firm, or how your firm compensates you, can vary greatly from practice to practice. A good firm compensation scheme keeps lawyers satisfied and supports firm objectives. A messy compensation scheme causes division which can threaten the productivity of the firm. So, how do you get the first while avoiding the later?
Factors in Lawyer Compensation
An effective compensation system needs to balance a number of factors, including:
- Production and billable hours
- Management, training, housekeeping, for those hours nonbillable
- Seniority and expertise
- Sales, marketing, and new business development
And those are just the most common compensation factors. Some firms may even compensate partners for name alone, reasoning that, even if they aren't rainmaking themselves, a prominent partner can lend extra credibility or cache to the practice.
Lockstep Compensation vs. Merit-based Pay
Some firms may employ a so-called "lockstep system," where compensation advances, in lockstep, on a yearly basis, according to a lawyer's tenure at the firm. Under a typical lockstep system, new associates hired in 2014 would advance as a class, their salary increasing yearly, until they are considered for partner in their fifth to eighth year at the firm. Incentives are given through bonuses, rather than base salary. For those who make partner, interest in the firm increases yearly, though some firms cap scheduled increases after 15 or 20 years.
In contrast to the lockstep system is "merit-based" compensation. Merit-based payment schemes, which are growing more common, are usually subjective, incorporating performance-based evaluations from an individual or compensation committee. Some rare firms attempt to use objective criteria in their merit-based compensation, tying payment to a numeric formula based on attorney production or profitability.
Don't Leave It up to Tradition or Guesswork
Sound like a hassle? It is -- and it's often a contentious hassle at that. Law firm compensation committees can be controversial, distribution of firm profits can exacerbate tensions between attorneys, and, frankly, finding the right balance can often be an act of guesswork or tradition rather than precise planning.
Of course, if you're looking to improve, adjust, or just better understand your firm's compensation system, there are plenty of resources available. Not least of these is "Dividing the Pie: Law Firm Compensation Systems," by Jay Westcott. (Disclaimer: "Dividing the Pie" is published by Thomson Reuters, FindLaw's parent company and benevolent overlord.) Such resources survey the pros and cons of various compensation systems, providing an overview of law firm compensation based on years of experience in legal management.
That certainly beats pulling a number out of a hat.
Whatever compensation system you settle on, remember that your firm's plan should do more than fund its partners' sports car purchases. A good system makes economic sense, rewards your attorneys, and promotes the objectives of your firm -- and it's not as impossible to put together as it sounds.
Related Resources:
- What America's Lawyers Earn (ABA Journal)
- Easy Hourly Billing Rate Calculation for Lawyers (FindLaw's Strategist)
- How Lawyers Pad Their Hours and Why You Shouldn't (FindLaw's Strategist)
- Beating Billing Blunders: Time Tracking Tips to Help You Get Paid (FindLaw's Strategist)
