Firms Recalculating Compensation Models

, The Legal Intelligencer

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But consultant Jeff Coburn said putting too much emphasis on origination also creates the potential for dysfunction.

"It prevents growth because everybody's depending on this one person," Coburn said. "The finder has become too much of the driver of the compensation program."

Coburn said overcompensating for origination also discourages cross-selling by incentivizing attorneys to hog business for themselves.

Shunk has seen alternative compensation models emerge. Some firms will attach an expiration date to origination credit while others will split the credit among several partners who pitched for work as a team.

While the compensation spread among the highest- and lowest-paid partners grew significantly during the recession as firms threw money at rainmakers to keep them from jumping ship, Shunk said some firms are taking a stand. She said they are putting culture over dollars and letting those attorneys walk out the door. Firms can't just think about this year's revenue but where revenue will come from three to five years from now. In order to do that, they have to maintain a culture where people want to stay, Shunk said.

Spirgel said his firm is transparent about the metrics it tracks to determine compensation and uses those metrics to motivate its attorneys.

"Clearly firms have gotten more sophisticated in tracking financial data and analytics," Spirgel said. "They're drilling down and using a greater menu of accounting techniques. Lawyers historically have not done that."

One of the main metrics Flaster Greenberg tracks is realization—both the percentage of time that is billed and the percentage of bills that get collected—both on an individual attorney and individual matter level.

"We compare each attorney's realization to the firm's average," Spirgel said, explaining that the overall goal is to both increase the firm's average realization rate each year and to identify outliers within the firm. "There are financial consequences for being below average realization and there are rewards for those who are above it."

In calculating annual realization rates, Spirgel said his firm first takes into account an attorney's "direct cost"—compensation plus benefits—and average overhead cost, based on what tier of the firm he or she falls into.

What's being said

  • Chuck Bernstein

    Good basic article that is food for thought.

  • Publicus

    Downplaying origination is long overdue if we are going to make any continued claim to being a "profession." Rainmakers have had their rings kissed for too long. Let them bolt if their greed can't be satiated - the firms and the profession will be the better for it.

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