Slicing the Pie: Paying Originators, Managers and Workers

Attorneys play crucial roles in adding value to client files and enhancing the profitability of law firms. We consider the four main roles in which attorneys excel in accomplishing this:

1.  Bringing the client in (ORIGINATOR)

2.  Managing the client relationship at the file level (CLIENT/FILE MANAGER)

3.  Managing other timekeepers (WORKLOAD MANAGER)

While each law firm considers a unique set of factors in its compensation index, most firms prioritize originations and production when structuring their pay system. Firms rarely consider managing client relationships at the file level or managing other timekeepers in their compensation equation.  

When our law firm clients begin to place a value on all four roles, they have increased firm profits, enhanced existing client relationships,  and incentivized collaboration.   

A structured process helps you

compensate lawyers fairly.

LAW FIRM COMPENSATION SERVICES

1.  Bringing the client in (ORIGINATOR)

Attracting new clients is a demanding undertaking that involves expertise and dedication. It's been observed that only approximately 20% of lawyers in the private sector can consistently secure new clients. Since most law firms depend on specific rainmakers to sustain their functions, they cannot afford to estrange them. Originator pay varies, but the market usually pays 15%-25% of gross fee collection from the originator’s files. 

It's important for law firm leaders to understand the compensation system, which can be quite complex, and compare it to the market standards. Firms that use profitability-based systems would convert to an equivalent percentage of net income from the client or file.

Firms that use system-based marketing focused on building business for a team or the firm's brand will need expanded incentives to encourage attorneys to support the system's needs (content generation, speaking, professional networks, etc.)

2.  Managing the client relationship at the file level (CLIENT/FILE MANAGER)

Lawyers who independently work and manage files directly with client personnel deserve some share of the credit. In many firms, these efforts are under-recognized and improvements would help morale and client service.  In the same light, lawyers who manage case assignments they did not originate must handle these clients as if they originated them. Assuming this basic bargain is met, we suggest the client/file lawyer receive up to  20% of the credit in the reward system. 

Often, the lawyer who brought in the client also works and manages the client's files, so they would also receive this portion of the credit. However, there are instances where the originating lawyer brings in the client but depends on another lawyer to handle the files. Most firms distinguish between non-owner lawyers and equity owners when sharing the client/file credit. Some firms begin to share client/file credit and the related benefits when an associate is promoted to a non-equity partner.  Equity owners who manage client relationships for another equity owner typically receive some credit for it. 

Most firms that use formula-based compensation systems only consider working attorney production and origination when allocating the objective portion of the compensation. The client/file credit is treated as an origination credit in these systems. Some claim referring to client/file management as an origination credit is a misnomer, but it does not matter so long as the appropriate recognition and credit is received.

3.  Managing other timekeepers (WORKLOAD MANAGER)

Another essential element of creating profit in a law firm is the management of timekeepers assigned to files. Managing workload distribution and optimizing production efficiency can be quite challenging. For many lawyers with significant client portfolios, there simply isn't enough time to handle these tasks effectively.e to handle these tasks effectively.

It is not unusual for originating lawyers to manage the client relationship and manage timekeepers, but as they grow they must enlist the help of others. To do this successfully, credit sharing is essential. We suggest timekeeper management is worth up to 20% of the credit in the reward system.  If the same lawyer manages the client/file relationship and manages the timekeepers, they could earn up to 40% of the credit in the reward system. If no timekeepers are used on a file, the credit will stay with the originator.  

Production credit is the dollar value of the revenue received from a partner’s production. For example, if a partner records $10,000 in time dollar value, which is billed and collected, he or she would receive $10,000 production credit. If the originating partner designates a partner to be the responsible partner for a client or matter, the former will receive production credit for all billable hours he or she devotes to working on that client matter (during the time he or she is managing the work on that client matter.)

Overwhelmingly employee lawyers receive a base salary and a bonus for their efforts as a working attorney. Hourly and contract lawyers usually receive a share of the fees or an amount per hour. Production, experience, and expertise are the factors given the most weight when compensating working attorneys. Most equity owners also receive  pay for working attorney production, but it is typically through a compensation system that may or may not directly attribute pay to timekeeping. 

In terms of market pay, working attorney compensation typically ranges from 25%-40% of the gross fees from their work. To compare your compensation structure for non-owner lawyers to the market, arrange  your salaries by bar year (experience) and compare them to these ranges. Compensation should generally scale with experience. Almost every firm has exceptions, but we encourage firms to examine any inconsistencies objectively. Finally, these are only ranges, and we recommend firms balance market benchmarks with their own compensation strategy.   

Equity owner working attorney compensation may not easily translate into these ranges, and firm profitability will dictate how much compensation is available for equity owners. These market-based percentages are a reasonable guide for judging the competitiveness of your firm’s compensation results.

Recap

When dividing up the client credit,  it is helpful to consider the four main roles contributing value to the client relationship and the firm's profitability. 

Here is a handy table to help visualize the credit for each role:

Related articles on client origination credit and law firm compensation: 

• Well Developed Compensation Policies and Pay Plans for Lawyers
• Law Firm Associate Compensation in 30 Seconds