Firms Recalculating Compensation Models
When it comes to attorney pay, origination has held a steady place at the top of many firms' list of compensation criteria. But could rainmaking be drying up in importance?
Firm leaders and consultants who spoke to The Legal pointed to a decided shift away from a focus on origination credit, though no one predicted bringing in business would become irrelevant when firms dole out attorney compensation.
Marcie Borgal Shunk, a senior consultant with LawVision Group, said there is a "tremendous amount of activity" among law firms when it comes to determining whether their compensation models meet their strategic objectives. While many firms have yet to pull the trigger on those changes, Shunk said she expects to see action in that space in the coming year. She said firms of around 600 attorneys or less seem to be the most likely to be looking at their compensation models, while the largest of firms aren't doing so.
Some of the changes include examining whether the firm has the right amount of equity partners, reducing the pay of underperforming partners and making sure up-and-comers are being adequately compensated. She said it is naive to look at only associate and paralegal compensation. Firms are starting to have those more difficult conversations with partners, Shunk said.
Shunk said some of her colleagues at LawVision view revenue-focused compensation models as "outdated."
"Therefore, law firms are starting to look at how to compensate beyond origination credit," Shunk said.
Firms are moving toward a more balanced assessment that takes into account attorneys' investment time, such as time spent marketing, managing or sitting on committees. There is also an increased focus on profitability, Shunk said, with firms compensating attorneys on how profitable their work is. She cautioned that moving too quickly to this model could "tear a firm apart," however, as it could create dissension in the ranks.
Peter R. Spirgel, managing shareholder and chief operating officer of Flaster Greenberg, said, "The tension in attorney compensation" comes from trying to recognize the value of attorneys at every level.
"People who originate things think origination should be highly valued, people who are skilled worker bees think production should be highly valued and people who manage matters think that should be highly valued," Spirgel said, adding, "If you underpay any one of those constituencies, they're going to move."
The problem with de-emphasizing origination, Spirgel said, is that rainmakers are probably the most in demand on the market and therefore the most apt to leave for another firm if they feel undervalued.
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.
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