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Tip of the Week
Tip of the Week is presented by Joel Rose and is a complementary
feature of the New York State Bar Association's Law Practice Management
resources.
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Joel A. Rose is a Certified Management Consultant
and President of Joel A. Rose & Associates, Inc., management
consultants to the legal profession, Cherry Hill, New Jersey.
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Mr. Rose calls upon 38 years of experience consulting with private
law firms. His firm performs consulting assignments in law firm
management and organization, strategic and financial planning, lawyer
compensation, the feasibility of mergers and acquisitions and marketing
of legal services.
Mr. Rose has extensive experience planning and conducting retreats
and special expertise resolving problems among and between lawyers. He
may be contacted at (856) 427-0050; jrose63827@aol.com. His firm's
website is www.joelarose.com.
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In Financially Tenuous Times, Partners Must Learn to
Pull Their Own Weight
The dramatic economic changes in most law firms that have occurred
lately, have had profound effects on the compensation and the
attitudes of lawyers management about “leveraging
associates.”
During more profitable times, firms relied on associates to record
significantly more hours and bill fees that paid for their overhead and
provided profits.
In the past, as firms grew rapidly and revenues expanded, there was
plenty of cash to go around. The issue of “not having enough
money available to compensate partners” was not a concern for most
firms. However, the landscape has changed. The economics of
most law firms are different.
Today, most law firms cannot afford have partners who are unable to
“pay their own way” in one manner or another. More
firms are expecting their partners to work harder and are evaluating
partner performance carefully to determine differences in the amount and
type of their compensation. To help make this assessment, many of
these firms are establishing written standards against which partner
performance may be compared and upon which compensation determinations
shall be made. These written standards enable each partner to know
what “counts” in the compensation process and allows
partners to determine how they should direct their efforts to satisfy
firm objectives. They also allow partners to assess relative
contributions to the firm, theirs and others.
Relatively few firms have attempted to apply an arithmetic driven
formula to analyze each objective and subjective contribution. The
greater majority have opted for evaluation systems which enable members
of the management or compensation committee to interpret subjectively
the objective data and other contributions of each partner. Most
firms utilize a subjective evaluation process, supported by statistics,
which requires those administering the system to be (1) flexible enough
to recognize and accommodate conflicting objectives between the firm and
individual partners; (2) logical, objective and fair; (3) capable of
weighing the multitude of subjective factors; (4) able to recognize the
changing needs and contributions of the partners as the firm evolves;
and (5) being reasonably consistent when evaluating contributions of
partners. As firms have become more top-heavy with partners, those
firms which have been unwilling or unable to address their approach for
evaluating partner performance have experienced compensation compression
at the partner level.
Unless partners perceive themselves and their contributions to the
firm in relation to other partners in an honest and realistic way, and
that they are being compensated in proportion to their contributions,
the stability and continuity of many established law firms may be at
risk.
In today’s highly competitive and fee sensitive environment, in
combination with downsizing the associate complement, partners must
contribute to the value of their clients by doing more work themselves
rather than “overseeing” associates who bill on an hourly
basis and have a strong incentive to record and bill more hours.
Those partners capable of originating and retaining business from new
and continuing clients shall be rewarded for doing so.
Other partners who are unable or are not inclined to generate
business are expected to devote more hours to producing legal work,
training associates and/or managing the firm.
Notwithstanding that more firms are impressing upon their partners
that the progress of their individual compensation is predicated upon
the overall success of the firm, more firms are budgeting “bonus
pots” to be available to reward individual or groups of lawyers
only when their performance is perceived as being extraordinary.
It is assumed that all partners work hard to be good lawyers.
Therefore, eligibility for bonus payments include objective and
subjective contributions that exceed being a good lawyer. Partner
compensation reflects the assumptions about each partner’s talents
and their overall contributions to the firm. The real test of the
compensation system is how effectively each partner’s contribution
is recognized. For firms to refuse to recognize the necessity of
(1) articulating compensation criteria which are understood and agreed
to be the great majority of the partners, (2) introducing a more
structured process for assessing their total contributions and (3)
allocating profits among partners accordingly, is to refuse to recognize
the economic realities of practice law. This refusal threatens the
very “glue” that keeps a law firm viable.
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