Partner Compensation: Looking Beyond Billable Hours and Originations

How do you determine partner compensation at your law firm? You certainly consider each partner’s originations and working attorney receipts. But what about his or her reputation for top-notch client service, leadership ability, staff development efforts and specialized expertise?

Objective financial factors are easy to measure – but they shouldn’t be the only factors in determining partner compensation. If you want to encourage your partners to contribute to the firm in other ways, you will want to incorporate subjective criteria into your partner compensation structure.

The finder, minder and grinder system of compensation is familiar to most law firms. The problem is that it does not account for all the other positive behaviors that you may want to reward such as mentoring and participating in firm initiatives.

“Non-billable hours” is often used as a catch-all for things like staff development, team leadership, marketing, managing and community involvement. Some studies have shown that law firm partners tend to rank non-billable hours quite low (if not the lowest) on the list of criteria that factor into compensation. However, there are arguably many important activities that can fall into this category.

So how do you get your partners to address these issues? There’s a simple solution: Create incentives.

Determine which behaviors you would like to encourage, and find a way to incorporate those behaviors into your partner compensation structure. For example, is it important for your partners to participate on committees to help the firm advance in specific practice areas? Would you like to see more partners mentoring newer attorneys and teaching classes? Do you want them to assist with strategic client development efforts like participating in Bar activities or joining non-profit boards? How about participating in marketing initiatives and publishing articles, books and white papers?

It would be hard to argue that these behaviors don’t positively affect the firm. But these subjective criteria are much harder to quantify and assign a value to. Depending on your firm’s goals, you will need to decide how much weight you are going to give to the subjective vs. objective criteria and how you will allocate compensation based on those factors. Taking the total picture into account may require more complex calculations, but demonstrating the value of these contributions is important to the success of your firm.

Basing partner compensation entirely on objective financial factors, such as originations, receipts and billable hours, may be easier, but may not produce the results you’re looking for and often creates a silo mentality. Compensation based solely on these factors rewards individual goals over organizational objectives and does not promote cross collaboration. If you value the intangible contributions that your partners make to the firm and you want to encourage those behaviors, you should consider ways that you can incorporate subjective criteria into your partner compensation structure.

Contact me or another member of our law firm industry group for assistance with creating a partner compensation structure that aligns with your firm’s goals.