If your partner compensation system is no longer working for you, consider a complete overhaul and implement a values-based system that embraces shared partner values and desired firm culture, to replace it. When law firms are formed with only a few equity partners, many take the easy path of dividing the profits equally among the partners. In a new, three equity partner law firm, that means all three partners own 33 1/3% of the firm and receive 33 1/3 % of the profits, regardless of their individual contribution to the firm.
While the “share equally system” may work for a while, eventually the firm may outgrow it as individual contributions develop, such as in the case of this scenario:
Partner A takes on responsibility for firm management in addition to maintaining a full caseload. Partner B is the largest rainmaker and controls 60% of the firm’s business originations. Partner C is a business minder with few originations yet works long hours, heads a high-profile pro bono project and is a client pleaser.
Over the first five years of operation, the firm adds six associate attorneys. None of the partners are financially rewarded for mentoring and training the associates, and associate turnover occurs because firm associates do not feel valued. Resentments form among the three equity partners who feel their individual contributions are not being fairly compensated. Each makes a case for why he or she should receive a larger share of the annual pie.
With the firm at a crossroads, now is the perfect time to look at overall firm culture and consider implementing a values-based partner compensation system.
In the next blog, I will discuss how to evaluate and change your firm culture to guide you in establishing a values-based partner compensation system.
Marcia Watson Wasserman is founder and president of Comprehensive Management Solutions, Inc., providing C.O.O. To GoTM services to boutique and mid-sized law firms as well as other professional service firms. Her expertise includes operational management reviews; management development and training; succession planning; strategic planning; retreat facilitation; cash flow projections and financial management reports; recruitment; compensation and benefits administration; development of employee handbooks and job descriptions; business formations and relocations.