Question:
I am the owner of a sixteen-lawyer firm in Nashville, Tennessee. We are in our twenty-first year of practice. The firm is a business litigation firm. There are five income partners (non-equity partners) and ten associates in the firm. I hold all of the equity in the firm. While associates and income partners are paid salaries and discretionary bonuses I am looking at other options. I bring all of the clients into the firm and I am trying to change that. I would like to base compensation on origination of new client business – rainmaking if you will. I would appreciate your thoughts.
Response:
I understand your dilemma. A firm cannot be composed of solely attorneys who develop business without any attorney that can service it. Not can a firm be composed of attorneys with administrative skills without actual business to administer and oversee. A firm solely staffed with productive attorneys will soon run out of work if business is not brought in by at least a significant percentage of partners.
There are different kinds of origination: An attorney may be successful in developing business solely from a new source that has not previously been associated with the firm. On the other hand, the firm may have long standing clients whose business has been greatly expanded by a particular partner or group of partners. Obviously, both types of origination have value for the firm.
The presence of the firm itself does play a role in origination: While some clients and many attorneys, particularly heavy rainmakers, like to stress that clients hire attorneys and not law firms, the fact remains that a certain level and scale of work would not be able to be performed or serviced by a solo practitioner. Invariably, the size, resources and reputation of a law firm do play a role in an individual partner’s efforts to obtain or expand business. As an example, a solo practitioner would not be in a position to obtain and handle business consisting of a large volume of liability claims for a self-insured corporation. Substantial corporate transactions could not be handled by a solo practitioner. The resources of the firm must be a consideration.
Basing compensation solely on origination: There are obvious dangers to a pure formula based upon origination. First, it discourages partners from working on business developed by other partners even when they are more suited for handling that particular case. It discourages partners from giving support to marketing efforts of others and, most importantly, fails to reward partners who maintain a client originated by another or provide the administration or servicing of that client. At some point, the line becomes blurred between a partner that originates the work and the partner or partners that are maintaining the work and providing quality representation that keeps the client coming back. There is also a point over a period of time in which a client moves from being a client originated by a partner to being a firm client because of the amount of contacts from other attorneys in the firm over the course of the year. This pure origination formula fails to reward good lawyering performed by attorneys who have not brought any original business and fails to look at the administrative needs of a law firm.
You should think about whether you want to track origination and have it be a factor in determining salaries and discretionary bonuses as well as other factors such as personal production or whether you want to incorporate origination into a formula system to determine base compensation or performance bonuses.
I think origination should be a factor in determining attorney compensation but it should be balanced with other performance factors that are important to the firm – some will be objective and some will be subjective.
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John W. Olmstead, MBA, Ph.D, CMC
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