Best Practice: How to adjust compensation for client origination

Asked and Answered

By John W. Olmstead, MBA, Ph.D, CMC

Q. Our firm is an 8 attorney general practice law firm located in Kansas City, Mo. Five of the attorneys are equity partners and the other three are associates. The two founding partners are the only ones in the firm that bring in clients - the other partners are just workers. Currently the partners are paid based upon their collections for cases/matters to which they are assigned. They are also credited for work that others do on their assigned matters as well. We are concerned that in a general practice firm such as ours, everyone must be bringing in clients and we are considering changing our compensation system to factor in credit for client origination. I would appreciate your thoughts.

A. All law firms need a mix of finders, minders, and grinders. Finders (client originators) are needed to provide sufficient work to keep the workers busy. Minders (responsible matter attorneys) are needed to manage the portfolio of client work. Grinders (working attorneys) are needed to service and produce client services. While there are exceptions, in most firms partners must hit on all three of these cylinders. In other words, most of the partners must do well at finding, minding, and grinding. Partners may perform some of these roles better than others, however overall they should be competently performing each of the roles. Very few firms can afford the luxury of having several senior partners only bringing in business without being required to maintain personal production levels as well. Partner compensation research concludes that the most a law firm can afford to pay a rainmaker - over and above his or her own billable hours (fee collections) is the marginal profit derived from the associates the rainmaker can keep busy, regardless of how many partners he or she occupies. The most valuable partners are those who offer a balance of skills: worker, delegator, supervisor, and rainmaker.

Since origination of new clients is the lifeblood of any firm, it is a key factor that should be recognized in any compensation system. The exact weight that it is given will depend upon the firm and how dependent it is upon constant client replacement, only a few institutional clients, turnover of clients, leverage ratio, etc. A firm that has a well diversified base of institutional long time clients will typically weigh client origination much lower than a firm that has to constantly replace individual clients.

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John W. Olmstead, MBA, Ph.D, CMC,(www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.

Posted on June 3, 2015 by Chris Bonjean
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