Firms Recalculating Compensation Models
Duane Morris has based its compensation on profitability for years.
According to a recent study of the firm conducted by Harvard Business School, Duane Morris calculates compensation based on its matter contribution analysis (MCA) system, which it developed in 1992.
Under the MCA, the study said, an attorney's profitability is determined by comparing the projected hourly cost of employing the attorney with the actual hourly cost of employing the attorney.
An attorney's projected hourly cost is determined by adding up his or her compensation and overhead cost, then dividing that figure by the attorney's target billable hours, according to the study.
An attorney's actual hourly cost to the firm is determined using the same formula but substituting the actual hours billed for the projected billable hours, the study said.
If the actual hourly cost is less than the projected hourly cost, the attorney is deemed to be more profitable than expected, according to the study.
Ballard Spahr Chairman Mark Stewart said his firm won't be changing its compensation model, though its subjective nature does mean the focus of the firm's compensation can fluctuate each year. While origination and relationship management are key components of the firm's compensation process, other factors play into how the firm's attorneys are paid each year.
"We might go in and say we have some dynamic young partners who are going to be terrific and right now we think that, as a group, they are underpaid compared to their peers," Stewart said.
That might mean those partners who are typically the highest paid for bringing in the work get paid a little less to help reinvest that money in the firm's younger attorneys, Stewart said.
While most firms are anticipating a flat year when it comes to revenue and may have the instinct to pay their business generators more to keep them from leaving, Stewart said, "It's naive to suggest any one lawyer runs" an entire matter or client relationship. He said the firm doesn't pay "outrageous sums" for business generation.