It’s that time of year again: the holidays are approaching… and so are year-end compensation meetings at law firms.
Will your pay properly reflect your rainmaking contributions this year?
Some firms tie partner compensation to overall firm performance, regardless of individual contributions. But as a profit generator, you don’t need to accept this. Even lockstep firms have ways of rewarding bigger rainmakers now.
Your compensation should reflect the revenue you bring in — and you DO have the leverage to ensure you get what you deserve.
Let’s explore this in more depth.
’Tis the season for compensation
Law firms are a business. On a rudimentary level, that means the amount of money they can pay depends on how much they bring in.
Nobody knows at the beginning of the year what kind of year it will be. So, firms adjust compensation at the end of the year.
Pay, bonuses, and equity value depend on the firm’s financial status; there are no guarantees.
After a banner year, bonuses and distributions rise.
However, compensation is more constrained in mediocre or down years, and firms will pay less.
This year is not a banner year:
- Big Law is cutting costs and looking at a 5% reduction in the workforce.
- And Thompson Reuters predicts lots of out-of-work first-year lawyers.
- There is even an industry-wide issue with realization rates.
So, many are bracing this year for a not-so-stellar compensation season.
There is always also the counter-example: Milbank recently made a surprise move to raise associate pay – they must have had a banner year, and their pay structure reflects that.
The point is that business profitability fluctuates. Compensation may be unavoidably linked to those fluctuations for associates, service partners, or support staff whose value rests primarily on billable hours.
But rainmakers play a different game.
As a rainmaker, you are crucial to the firm’s success and revenue.
The blunt truth is, that you and your book of business are the financial backbone enabling the firm’s existence.
Your efforts give you leverage — the firm needs you more than the other way around.
With that power comes the influence to negotiate compensation based on the business you brought in and the clients you serve.
Ask yourself: How much value did YOU bring to the firm this year?
That’s what you’re worth, regardless of how the firm is doing overall.
And remember: If firm profitability is down, but your business is strong, you are MORE valuable, not less. When broader performance dips, that is precisely the time when the firm most wants you to stay.
It comes down to law firm economics.
It’s not that broader industry trends don’t matter. It’s just that your specific contributions count the most when it comes to compensation.
Think about it this way: An associate’s value connects directly to how many hours they can work. All they have to sell is their time. So, in a down market, when there are fewer hours to go around, the associate has less time to sell.
But for a rainmaker with a book of business, the economics change.
You aren’t selling your work by the hour — you’re bringing business to the firm.
That business-generating activity, the client loyalty you nurture, and the growth potential you represent for future business are the upward trajectory that ensures the firm’s future.
Put simply, without rainmakers bringing in business, there is no firm.
So, what happens when you have a profitable year but the firm doesn’t?
If your book of business is so crucial to your firm’s success, shouldn’t it be the primary factor in your compensation?
Your value depends on the money you bring in and what you deliver to your clients, so your pay should, too. This has become true even at more traditional lockstep firms.
Of course, many partners do realize this on some level. Still, many fail to internalize or act upon this awareness fully.
So, to truly understand your value, look at your book of business
When you walk into your year-end compensation meeting with a confident sense of what your book of business is worth, you can dictate terms.
When valuing your book of business, consider all the business that you originated.
Your originated business starts with the business for which you received origination credit.
It’s also the business you brought in that you didn’t get origination credit for, but should have because it wouldn’t have come to the firm without you. Sometimes, the person getting the origination credit is on a golf course somewhere while you do the work of generating new matters from the client you’re keeping happy.
The rules may say you don’t get the origination credit because your firm awards origination credit by client, and that credit lasts forever, but you should. And if you leave the firm, you can take that business with you, so it counts as your book of business.
There’s even a good argument for asking for more. If you need resources to reach your full potential, if there is more business out there that you could bring into the firm if only you had more marketing support or could go to additional conferences, then the firm should support you. Firm support matters even in, maybe especially in, a down year because the firm needs you to continue to bring in the business.
Read more about how to value your book of business in this blog post.
So, maybe the firm’s having a bad year, but… you don’t have to
Bottom line: Your compensation depends on your performance, and the firm needs you to keep generating revenue. And this is especially true when firm performance isn’t great. Just be aware that different compensation models rely on individual performance differently.
So you shouldn’t settle for less. You may even want to ask for more if you need additional resources!
So, how do you approach and manage that uncomfortable conversation?
I’ll explore that topic in more detail in an upcoming blog post, so check back soon for more!
In the meantime, do the work to understand your value.
Assessing appropriate compensation in a vacuum is not easy.
That’s where external guidance from law firm economics professionals can provide invaluable perspective.
Whether you are satisfied or concerned your pay falls short, an external perspective can help. I would happily review your compensation circumstances and offer candid market feedback confidentially.
Don’t settle for less than your fair share. Let’s schedule a call to discuss getting you the compensation you deserve.