Best Practice: Law firm partner compensation – collaborative team practice
Asked and Answered
By John W. Olmstead, MBA, Ph.D, CMC
Q. We have a 25-attorney firm based in San Antonio, Texas. We have 15 equity partners. We are equal partners and have equal ownership interests. Our partners are paid based upon ownership shares. Thus, each is paid the same. The system has worked well for us for many years and has supported our team-based collaborative culture. However, we are having issues with non-productive partners, and some of the productive partners feel that the compensation system is no longer fair. Some of the partners have suggested that we move to a formulaic system. Other partners in the firm feel that such a system would destroy the collaborative culture we have built. We appreciate your thoughts.
A. I agree that you must shift to a compensation system that rewards performance and overall contribution to the firm yet preserves the culture you have built over the years. I think that a pure formulaic system would shift you to a “lone ranger” culture with everyone out for themselves. For your firm, a subjective or a hybrid system incorporating quantitative and qualitative performance factors would be best.
To implement such a system you will need to set up a compensation committee to make partner compensation decisions. I suggest a three-member committee elected by the partners to three-year staggered terms. The committee will determine and publish performance factors to be considered, conduct annual face-to-face performance evaluations, approve each partner’s annual personal goals for the following year, and make its partner compensation recommendation to the partnership regarding the upcoming year salary and bonus for the past year.
The partnership agreement or other compensation policy document should specify the procedure and what happens when the partnership does not approve the compensation committee recommendation or when a partner requests reconsideration.
A system such as this requires more time and work but usually yields better results, especially in a team-based collaborative practice. More and more larger firms are using subjective or hybrid systems.
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 and author of The Lawyers Guide to Succession Planning published by the ABA. 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 firstname.lastname@example.org.