The topic of associate compensation typically generates many questions.
- What should you do when market pay and associate contributions are not aligned?
- Is compensation an incentive after a certain point?
- Should associate base salary contain more base pay or more bonus?
- How do we manage profitability when clients tightly manage the use of associate time?
The answers we give to these questions depend on client service needs and a firm’s goals. And while every firm is different, there are best practices and a process for rewarding tangible contributions that any firm can use.
This article and ones that follow will review the components and processes to consider in developing an effective law firm associate compensation system.
To start, consider the following distinction between subjective and objective contributions:
Distinguishing contributions that build long term value from those that contribute to profits (profit contributions) is the first step in creating the right incentives. Eventually, these distinguished categories should intersect, but they may also remain distinct.
As the chart indicates, building long-term value contributions are rewarded through salary and profit contributions through bonuses. When considering advancement, each is weighted equally.
It is our experience that many law firms weigh the objective profit contributions more than the qualitative/ long term value contributions listed in the lower half of the table. A firm’s long-term performance, however, is more affected by qualitative factors, and we recommend balancing short and long-term priorities.
For example, building long term value may lead to higher bill rates, realization, and availability for a wider range of assignments. Alternatively, a lawyer who is assigned to a case requiring a large volume of repetitive functions may be contributing higher profit dollars now, but may not advance their marketable skill sets.
In the competitive legal market, properly incentivizing and compensating associates is essential to not only the retention of top attorneys but also to a firm's profitability and long-term viability.
Upcoming blog posts will expand on the topic of associate compensation discussing areas of most interest to law firms including:
- Practice area billing rates and compensation
- The game of effective associate compensation
- Base Pay
- Compensating for profitability
- Additional areas of value to consider
- Managing an effective compensation system