Compensation season: Never too early to prepare for next year
I’ve been recruiting lawyers for over 20 years. What occurs every year, never ceases to amaze. My phone rings regularly (believe me, I am not complaining), asking for comparable data for partner compensation. While I willingly share my views and experiences, it is not lost on me that sharing such data may lead to “loosening” someone’s grip on their current firm. Despite what many think, this is not my goal, nor my desire. Honest feedback leads to appreciation, and perhaps one day a kind word being spoken.
This piece will attempt to explain the evolving phenomenon that hits law firms in Q1 of each year. Firms, and similarly, partners need to be aware and prepared for what each year brings on the topic of partner profits. Over the last five-year period, I have seen a shift in how partners get compensated. To simplify, partners with large practices yield greater return on their time than those who are deemed by their firm as service partners. Why is this the case? Simply, those with large practices are more valuable to firms, or stated somewhat differently, more important to retain. As well, these same folks are getting recruited regularly to consider alternate firm platforms. As such, a slight misstep on compensation by their firm may not lead immediately to a move, but can be a planted seed that gets cultivated over the coming years, and ultimately, lead to a dislocation of the partner.
On the flipside, service partners are typically highly talented lawyers who add value to the firm clients, and are necessary in the life cycle of a file. However, the market now believes, and I don’t disagree, that these folks are increasingly more dispensable. While these people can be replaced, perhaps at an even lesser cost, the attrition of these partners is in itself costly, not to mention the cost of adding new people. So, firms should seriously consider how they approach this new regime, while handling it with kid gloves, especially for those you wish to retain. With an 800-word limit, I won’t explore the new onslaught of titles entering Big Law (read: Counsel), but rest assured, this new regime is here to stay, and the sooner a firm adapts, the better.
What should a firm do to prepare for compensation season? Firstly, a firm must be prepared (as should the corresponding partner) to speak to their peers about their experiences and challenges in this vein. The firm should also assemble a fair and independent compensation committee that will alleviate any perceived conflicts, or self-serving members. This is one of the biggest complaints we hear from partners who question how their points/profits were determined. Assuming you have these pieces in place, the final preparation is to understand your individual partner needs and concerns. Similarly, partners should do their homework, and enter the negotiation/committee meetings with preparation and understanding of their own firm economics. While addressing concerns individually (by the firm to the partner) may seem counterintuitive, understanding your partner’s intangible differences and unique skill set enables a firm to properly address each and every partner appropriately. Further, this understanding will assist in avoiding an inequitable process.
One model I have admired over the years is the one where profits are determined every two years. Once complete, the model is set, and any concerns will be addressed in the future, giving time for folks to perform, or under-perform, whatever the case may be. It is always difficult to adjust one’s compensation based on a good or bad year. Taking at least two combined years provides more of a balanced approach. In addition, taking into account the prior three-year period also provides more empirical evidence, thus making the final number a more accurate and suitable commitment by the firm.
Finally, partners are sometimes not their own best counsel. In other words, when a firm decides to downgrade a partner’s compensation, the partner needs to understand why this happening, and more importantly; are there other intended messages that need to be discussed. Unfortunately many law firms do not handle this conversation well, and so adjusting someone’s compensation downward can, and often has, internal messaging. If this is indeed the case, partners and their firms would do each other a huge favour by having a transparent conversation, ideally under well-prepared circumstances.
Warren Bongard established his own legal search firm in 1996 before he co-founded ZSA Legal Recruitment in 1997. As president and co-founder, Bongard manages lawyer recruitment operations and focuses his practice on partner-level hires and special in-house assignments. Warren is passionate about his family and when time permits, lowering his handicap in golf.