Law firm compensation models are always a hot topic in the legal industry—especially at the partner level.
Firm leadership makes compensation decisions based on what’s best for the firm—whether that means protecting profits, rewarding certain behaviors, or investing in future growth. For some firms, this means emphasizing citizenship and mentoring; others only care about how much work each partner brings in.
But while they’re focused on their priorities, are you sure your firm’s compensation model is leading you in the right direction?
We’re here to help you assess whether your firm’s structure truly reflects your value.
Note that understanding the value of your book of business is part of this equation. However, I don’t go into valuing your book of business in this post. If that’s what’s on your mind, you can read more on it here:
- How to value your book of business
- Download our book of business calculator here
7 factors that impact law firm partner compensation
The factors in this section are common ones that affect compensation.
1. Equity partner versus employee
The first factor impacting compensation is whether you are an equity partner. Equity partners are firm owners, and their compensation is tied to profitability. Partners have a say over management issues (including compensation) and generally earn more than non-equity employees.
If you are a partner, the most common way to earn more money is to bring in more business. Your compensation is often tied directly to the money you bring into the firm.
2. Non-equity partnership model
Most top law firms have implemented a non-equity partnership tier, in which you may have the partner title and many of the same rights as partners but without an ownership stake.
Firms see this as a way to increase rates (partners charge a higher rate) with the complexity of expanding ownership, and it creates a career path for lawyers who don’t want to become equity partners or who need support developing business before they become equity partners.
There is debate about the value of a two-tier partnership model. Some firms and partners complain about non-equity partners being “second tier” or “fake” partners. Others say there is value in the title, and both lawyers and firms get something as a result.
You should make more money as a non-equity partner than as an associate, and a partner position can help lawyers brand themselves as partners for their next move.
3. Originating attorney credit, or origination credit
Origination credit is credit that a lawyer gets for bringing business to the firm and is either determined by client or by matter.
Attribution of origination credit can be a tricky topic, and understanding the formula is essential.
One standard method is the attribution of origination based on the initial introduction. Such an attribution means that even if another lawyer (you, for example) makes an effort to bring in a new matter from a client, that lawyer (again, you) may not get origination credit.
This method may be great for the lawyer who introduced the client to the firm 20 years ago and now spends his days on the golf course. But it can be an issue for the newer lawyer who brings in the business but doesn’t get credit.
Origination is often an issue for younger lawyers with a significant book of business. And sometimes, the only way to get full origination credit is to take your clients to another firm.
4. Billing attorney
The billing attorney is an experienced attorney with the time, experience, or skills needed to address a client’s needs. The billing attorney enters the client relationship when the originating attorney doesn’t have the time or expertise to handle the client’s needs.
While models differ, generally, billing attorneys share some of the origination credit.
Another way to put it is that billing attorneys often do the work and pay some of the origination credit to the lawyer who made the original introduction.
5. Working attorney
A working attorney is any lawyer who works on a client file.
Generally, 30-40% of fees collected go to the lawyers who generate and work on the business.
If you are a rainmaker with a book of business, one challenge you may face is not having enough support from billing attorneys and working attorneys to serve your clients.
If you have a talent for bringing in work and then must do all the work yourself, this is almost certainly limiting your compensation.
6. Realization aates
The realization rate is the percentage of your bill the firm collects. If you billed 20 hours but the client paid 15, your realization rate is 75%.
Firms must be able to pay you and generate a profit, so the more they have to discount or write off your fees, the harder it is for the firm to pay you.
Even if it isn’t explicitly in the calculation used to pay you, your realization will play a role.
7. Firm citizenship credit
Citizenship credit is compensation for doing good things for the firm.
These good things often involve internal training, supporting new hires, or being a good mentor. They can also include work like writing articles or blogs, speaking at conferences, serving on internal committees, or taking other actions to make the firm look better.
Basically, citizenship comprises the actions that make you an excellent contributor to the firm, not just your bottom line.
Cross-selling and cross-marketing
This is generally a pool of money to support lawyers who help each other bring in new business. I get some credit for inviting you to my meeting with a client so you can market your skills, for example.
Some firms wrap this into firm citizenship, but the firms that reward this directly may find it easier to incentivize.
Negotiating pay: are you on the right path?
We are adamant that lawyers should be happy and well compensated.
However, there is a fundamental fact to keep in mind when negotiating: regardless of the compensation model, what you want, and what you are looking for, your contribution must support the firm’s economics.
Economic necessity would seem obvious, but lawyers often forget that their compensation must fit the firm’s needs.
If, for example, you bring in $1 million of revenue into the firm through your origination and billing, the firm can’t pay you $1.5 million.
That doesn’t support the economics of the firm.
Every action for which you receive compensation must, in some way, improve the firm. If you receive citizenship credit, the firm must believe that the effort you put into being a good corporate citizen will yield higher billable hours or more clients elsewhere.
When you negotiate pay packages, consider compensation as an economic negotiation, economics is at the heart of every law firm partner compensation package.
The general rule of thumb is that you get about a third of what you bring in. If you are a rainmaker, do very little work, and the firm relies on service partners, maybe you get less. If you do all the work yourself and bill ridiculously high rates, perhaps you get more.
The firm’s goal is to find a way to keep people from leaving and incentivize the right activity while also making a profit.
There are as many ways of doing it as firms out there.
But it all comes back to economics.
To put yourself in the strongest position to negotiate your pay, know what you are worth to the firm. Take the time to estimate the value of your book of business and use law firm economics to your advantage.
Read our blog on how to value your book of business.
Download our book of business calculator here.
How guaranteed pay works when changing firms
As a rainmaker changing firms, you will want to consider all aspects of your compensation, but the trickiest one will be the guarantee versus bonus.
When you switch, you will receive a guaranteed salary based on what you have done in the past. Then if you hit specific targets, you will earn a bonus.
Remember that you are a risk for the firm: they are betting that you will perform, but they don’t have enough history with you to know for sure.
One crucial tip I always share is that it is much easier to negotiate a higher percentage bonus than a higher guaranteed payment. The guaranteed payment is risky for them, whereas the percentage of income is all profit. So, if you believe in yourself, go for the percentage, not the guarantee.
What’s next for you?
Does your firm’s compensation system meet your needs? We want successful lawyers to be happy, and compensation structure can hugely impact that happiness.
We help lawyers find their exact right perfect fit firm every day – fit includes compensation models. But compensation is only one part of the equation. Let’s talk if you are frustrated and wondering what your options are. It may be that you are already at the right firm and need to negotiate some of your compensation terms.
Whatever your situation, I am committed to your happiness. Give me a call today, and we can discuss your situation.
