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As law firms work to attract and retain top talent, the question of how to balance salary and bonuses is more important than ever. Should you offer a higher base salary for stability, or would a lower base with a larger bonus motivate your team to push for better results? There’s no one-size-fits-all answer, but the right balance can set your firm up for long-term success. In this post, we’ll dive into how law firms can combine these two elements to create a compensation plan that not only rewards performance but also supports the growth and satisfaction of your attorneys as they advance in their careers.
When putting salary and bonus together, law firms often consider their philosophy on the incentive structure as follows:
|
Higher Base/ Lower Bonus
|
Base salaries are closer to the top of the applicable range and typical bonuses range from 5-10 percent of salary or less. |
|
Lower Base/ Higher Bonus
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Base salaries are lower than the market average, but typical bonuses can range as high as 20% of compensation for high-producers. |
While the lower base approach reduces the financial risk of underperformers, it can harm a law firm’s competitiveness in the labor market. Over the last five years, base salary levels seemed to receive the most weight from attorneys when deciding to join or stay with a firm. While other factors, such as work environment and career opportunities, receive some consideration, attributing dollar values to them is difficult. Base compensation provides certainty and financial security to help meet rising living expenses and debt service.
A balanced compensation approach proves most valuable, as it includes modeling to help the firm forecast its financial position at different salary levels and bonus payouts for its associates. Law firms can model their attorneys' future capacity, overhead, and billing rates to estimate how anticipated raises and bonuses impact their profitability.
While market conditions constantly change and each firm’s economic model differs, some historical benchmark values may help firms establish their initial salary progression structures.
Recommended Initial Comp Ranges (as % of billings/ collections)*:
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0-3 Years |
4-7 Years |
8+ Years |
|
25%-30% |
30%-35% |
35%-40% |
*These ranges are considered only for working attorney performance. As attorneys mature, they may take on additional responsibilities that could justify an expansion of these ranges in later years.
Typical Minimum Profit Margin Ranges:
|
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
Year 6 |
Year 7 |
Year 8 |
Year 9 |
Year 10 |
|
0-15% |
20% |
20--30% |
25-35% |
30-40% |
35-45% |
35-40% |
30-40% |
15-30% |
10-30% |
Disclaimer: specific values depend on firm size, practice areas, billing rates, overhead structure, and firm lifecycle stage (startup, growth, maturity, decline)
While the high base approach is more competitive in today’s associate market, law firms should consider increasing the risk-based portion of the compensation over time (a gradual transition from higher base/lower bonus to lower base/higher bonus), especially once advanced attorneys hit a production ceiling and need to contribute value in other ways, such as training younger associates, developing new business, or participating in firm management.
Ultimately, the right compensation strategy combines both stability and incentive, allowing law firms to reward performance while maintaining financial sustainability. Whether you choose a higher base or a bonus-focused approach, it’s important to create a system that rewards performance and supports long-term growth. By regularly reviewing and adjusting your compensation plan, your firm can stay competitive, attract top talent, and keep your attorneys engaged and productive.
Other resources to guide you in developing the right bonus structure for your law firm: |
