Improve Your Partner Comp System

by | Apr 26, 2016 | Business Strategies

Partner compensation is one of the trickiest areas of running a successful law firm. Establishing a fair compensation system is difficult as each partner has his or her own goals and definitions of the word “fair.” Compensation systems, however, are one of the most effective tools at a firm’s disposal to help grow the firm and manage cash flow. Compensation is one of the best motivators to get your partners working on the firm instead of in the firm. Below are some tips you may find helpful in incentivizing your partners.

  1. Establish a cohesive direction as the firm and the compensation system must work together. Your compensation system dictates the ways in which your partners spend their time. If your comp system emphasizes chargeable time, so will your partners. If it emphasizes staff development, so will your partners.
  2. Shift the focus from the individual to the institution by establishing compensation percentages during the beginning of the year to steer the effort from individual compensation towards increasing firm revenue and profit. It will also help your partners work on firm goals.
  3. Assess attorney and niche profitability. If profitability on a niche or client-by-client basis is important to you, it should be reflected as part of the compensation system. It is essential to assess how much it costs for the firm to employ the attorney and then assess their contributions to the bottom line. They should at least cover, if not exceed, their maintenance expense. It will also help you apportion overhead costs to each practice area and partner.
  4. Generate new business, but be careful not to over-emphasize revenue from personal production rather, place new business generation and maintenance on current clients on a high pedestal.
  5. Reward effective management. There are several approaches to this, but it makes sense to reward partners who spend time managing staff or other firm matters. While an hourly compensation may make sense, you may also consider providing a stipend or incentive-based bonuses for meeting certain management goals.
  6. Determine when you disburse funds as this can help with cash flow. Providing income to your partners subjects the firm to payroll taxes as well as hits to your cash flow. Like all businesses, your firm has periods in which cash flow is tighter than others. Try to avoid disbursing wages to your partners during these times in order to help manage cash flow.

The professionals in our firm can assist you in evolving your partner compensation system to reflect your firm’s changing goals. Call us today.