Attorney Compensation Models
When you start to work with the larger firms, you'll find that the compensation reporting can get a bit tricky. There are multiple ways of compensating attorneys. The most common are:
1. Ruler or Monarch Method
2. Partner Share Method
3. Eat what you Kill Method
4. Hybrid Method
Ruler or Monarch/Bonus Method:
We see this in the smaller firms. One attorney, usually the rainmaker, will determine the compensation for the other attorneys. They act like the King or Queen or ruler. The attorneys typically get a base salary and bonuses when thresholds are met.
Partner Share Method:
This method is when all partners take an equal amount of draws from the firm. This one is tricky as all partners need to have the same work ethic and drive. The Partner Share method is a very simplistic method, with the other attorneys - non-partner ones on salary.
Eat What you Kill Method:
Each lawyer's compensation is based on the revenues they generate. It is typically a formula or a spreadsheet that will factor in overhead and then distribute all remaining profits to the lawyers based on their collections. Overhead is often an amount using the sum fixed and predictable expenses, such as rent, office supplies, shared staff salaries such as the admin and paralegal, and other agreed-upon costs for the firm. This method can get complicated when it is used for the partners with percentages, and then there is a different method used for staff attorneys. This system works best when you have partners with different work-ethics.
The majority of firms use this method. They will agree on one of the above and then "modify" it on the fly. The hybrid method is made more difficult due to the attorneys' compensation exceptions, which makes calculating the totals much more than simple math calculations. We always try to focus on using the accounting data in QuickBooks and the compensation payments. We want to align the data to the source or payment. We like a backup of how the compensation payments were calculated. We prefer to use an outside app like Reach Reporting, which will use the data in QuickBooks and sometimes LeanLaw and automate these complex calculations and exceptions. See the demo in the video below on Reach.
What Method Works Best
The most important method is the one that keeps both the worker bee attorney as happy as the partners. You want those attorneys that are not partners to be as excited to bring on new clients as the partners are.
While it's critical for law firm success to bring in new clients and more billable hours, it's also just as important to form those relationships that create an excellent robust referral system in your firm. Like we mentioned last week about the net promoter score and how to add that to your accounting, it's valuable.
If you are a firm partner, you need to understand what the firm's values are. All partners must decide this together, so you are one cohesive unit. Once that's determined at the partner level, it will flow down into your staff. But it would be best if you decide the groundwork for the firm's overall success.
There are multiple ways for that mid market firm to compensate their attorneys. With that rainmaker attorney, they bring in the work they are typically the most highly paid. This method doesn't always work because you could be bringing in what I would call junk clients to get bodies in the door. That's when you lose the overall firm's value discussed in the paragraph above. It's essential to have good customer service with a good satisfaction rating.
Motivate your Staff
How do you motivate your staff to be as excited as the attorneys or worker bees? Give them some goals and make work fun. Yes, the law firm work can be serious business, but it's important to give employees something to strive for, and then when they meet their goals, celebrate their success. Maybe have an employee of the month type of woman. Give them recognition when they've done something good, especially if it's suitable for the entire firm. You know that thing that happens when somebody goes above and beyond. Make the workplace a place that everybody would want to work. Be flexible to the needs of people who work for you who have young families or elderly parents. Keep your employees striving to improve and maybe move up the chain of command at the job. It's always good to know that there's something else to strive for. Perhaps it's just educating yourself in learning more about technology around your position at the workplace.
Compensating your staff is vital to a thriving firm. Finding the right model for your firm to make a very happy workplace is critical. Without that, you'll have a revolving door of employees. Nobody wants that. I hope this helps us determine what compensation plan works best for you.