Lawyer Compensation: Trends, Models and Metrics that Go Beyond Lockstep

Transcription

1 Lawyer Compensation: Trends, Models and Metrics that Go Beyond Lockstep FEATURED FACULTY: Kristin Stark, Principal, Fairfax Associates (415) David R. Maurer, Managing Director - Partner Practice Group, Major, Lindsey & Africa (415) [email protected]

2 Kristin Stark, Principal, Fairfax Associates Kristin is based in California and advises firms on strategy development and implementation, organizational management and structure, financial management, and compensation. Prior to establishing the Fairfax office on the West Coast, Kristin was a Senior Director with Hildebrandt Baker Robbins (a subsidiary of Thomson Reuters), advising law firm clients on strategy and management topics. Before joining Hildebrandt, Kristin was a senior consultant with Deloitte, managing consultant teams implementing innovative financial restructuring strategies for Fortune 100 companies. Kristin has served global firms in the U.S., U.K., and Asia as a consultant on both strategy and operations management projects. Kristin has a BBA from the University of Notre Dame and a MBA from London Business School. David R. Maurer, Managing Director - Partner Practice Group, Major, Lindsey & Africa David is a member of Major, Lindsey & Africa s Partner Practice Group in Northern California where he specializes in recruiting prominent law firm partners for top law firms. David most recently served as in-house counsel at Morgan Stanley in San Francisco, where he spent six and one half years as a Vice President and attorney defending the firm and its employees in litigation and regulatory matters. Prior to joining Morgan Stanley, David practiced law in Southern California with Straddling Yocca Carlson & Rauth and Gibbs Giden Locher & Turner, where he devoted most of his time to commercial litigation with an emphasis in financial services litigation. David earned his law degree from Loyola Law School, Los Angeles, graduating magna cum laude. While at Loyola, David was a member of Law Review. David earned his bachelor s degree, in Political Science, from the University of California at Berkeley. Prior to attending law school, David was an Assistant Vice President with Wells Fargo Bank, where he managed a team of trust officers. In addition, David previously held General Securities Representative (Series 7) and Securities Principal (Series 24) licenses.

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4 An Overview of Partner Compensation Systems Kristin Stark Principal, Fairfax Associates Page 0 Current Trends in Partner Compensation Increasing focus on compensation in firms Driven in large part by the economy Growing recognition that current arrangements not wholly effective and / or equitable Dramatic re-distribution of compensation in recent years Increasing spread in ratio of high to low Competitive pressure and lateral recruitment having impact Parallel focus on more effective partner performance management Hildebrandt Page 1 1

5 Evolution of Partner Compensation Systems Parity Seniority/Lock step Formula Performance Based Subjective Page 2 Key Elements of Subjective Systems 1. Prospective Versus Retrospective? Some advantage to prospective systems which are more common among successful firms 2. Who Sets Compensation? Role of management vs. checks & balances Success requires strong, respected management 3. Reviews Objective Financial Data But don t succumb to the search for perfect data May include profitability data as input 4. May Track Origination Page 3 2

6 Key Elements of Subjective Systems 5. May use a plan to model partner performance 6. May use defined levels in which partners move up and down 7. Includes pre-, post-, and mid year compensation interviews Among the most critical elements in any system 8. May use a retrospective bonus pool to reward extraordinary performance Generally in range of 5% to 15% Page 4 Key Compensation Principles Effective compensation systems pay income that is reflective of: The market compensation value for a given partner The full spectrum of efforts needed to operate the firm beyond purely financial contributions that is why simple profitability doesn t equal compensation. Working hard is important, but it isn t the only criteria. Generating and sharing clients, training and delegating, managing, sharing and development of expertise, and recruiting are all important. Hours worked is not an equalizing criteria cash is the only medium you have to distribute, so it is the primary medium you measure. There is no compensation amount simply for ownership or being a partner. It is all based on merit. Seniority as a compensation criterion has largely disappeared. Page 5 3

7 Key Compensation Principles For most law firms, contribution to the existence of the client base is a critical compensation factor. Initial introduction or generation of a client does not insure lifetime origination/compensation benefits. Origination of clients cannot be precisely or easily measured. Origination is an attempt to quantify a relationship, and relationships tend to be fluid/subject to constant change. Data has an important role, but origination can be manipulated or misinterpreted, resulting in a flawed measure. Page 6 Key Compensation Principles Profitability plays an influential role in management of work and indirectly in compensation. However, this involves managing profitability and using it as one of many factors in setting compensation. Partner performance management is critical and is found in most successful firms. Many firms experience high levels of internal dissension and turnover if there isn t agreement on, and enforcement of, minimum performance standards. Relative compensation matters more to partners than absolute compensation. Page 7 4

8 Key Compensation Principles Partner performance management is critical and is found in most successful firms. Many firms experience high levels of internal dissension and turnover if there isn t agreement on, and enforcement of, minimum performance standards. Relative compensation matters more to partners than absolute compensation. Open systems are more common, but relativity issues tend to drive dissension. Closed systems, with trusted leadership, tend to result in increased satisfaction. Page 8 So What s a Firm to Do? Align incentives and rewards with your strategy If your firm s compensation incentives are individually based don t expect partners to do anything that is not individually motivated Recognize the critical role of compensation as a tool for driving partner and firm performance Not just a means for diving the pie Don t try to motivate lawyers with simplistic incentives or formulas What behaviors do you want to encourage and reward? Page 9 5

9 Principal Contacts London Washington DC Los Angeles Giles Rubens Lisa Smith Kristin Stark Guy Himsworth Fairfax Associates This presentation is solely for the use of [Firm] personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the firm without the written permission of Fairfax Associates. This material formed part of an oral presentation and is not a complete record of the discussion. Page 10 6

10 What Do Partners Say About Compensation? David R. Maurer Managing Director Major, Lindsey & Africa August 2011 Are Partners Satisfied With Compensation? Approximately three quarters of partners are satisfied or somewhat satisfied with compensation Most partners say they deserve greater compensation Of partners who are not satisfied with compensation, nearly three quarters believe it is the result of bias; cronyism is the primary bias cited 1

11 What s Important in Compensation Decisions? Sixty-three percent of partners express a desire for change in compensation system Very Important: Originations (76%); Working Attorney Receipts (58%); and, Billable Hours (57%) Somewhat Important: Management (59%); Realization (53%); and, Cross-Selling (46%) Factors Becoming More Important: Seniority (42%); Non-billable Hours (32%); Good Citizenship (25%); and, Originations (24%) Factors Becoming Less Important: Realization Rate (52%); Seniority (32%); and, Billable Hours (31%) What Changes Do Partners Want in Compensation Systems? Increased transparency Greater emphasis on cross-selling Greater recognition for good citizenship and team work Less cronyism Faster reduction of compensation of non-performers Greater consideration of non-billable hours Less emphasis on billable hours/working attorney receipts 2

12 Some Issues To Consider Compensation system will not turn attorneys into business development superstars Firms that are creative in sharing origination credit and allowing flexibility incentize collaboration How will compensation be determined when clients start pushing for fixed and/or capped fees? Money isn t everything What About The Associates? Some firms offering different partnership tracks Some firms recognizing need for non-partnership track associates Firms still competing for top-talent and willing to pay 3

13 MLA Contact Information David R. Maurer Managing Director Major, Lindsey & Africa 555 Montgomery Street, Suite 1500 San Francisco, CA, (415) Questions? 4

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