Compensating for Law Firm Profitability

January 31

Compensating based on profitability ensures that a firm’s bonuses are tied to created profits. While more difficult to accomplish, the results are often better.  Looking at profitability information requires more transparency and information sharing of the firm’s cost structure.  This makes some partners uncomfortable. However, our experience has shown that when partners (including the most resistant ones) have a working knowledge of the impact of various elements on profitability,  a high-performance culture is often the end result. 



Consider the following basic formula:





An effective associate compensation system is aligned with law firm goals and will reward productivity. If your law firm is interested in profitability based compensation systems for law firm associates, the following articles will also be of interest: 

Previous Associate Pay Posts:



This post reviews all of the necessary components and processes to develop a strong associate compensation system at your law firm. 



How should a law firm compensate same-year associates working in different practice areas with materially different billing rates? This article discusses answers to this question that we frequently get from law firms leaders and partners. 



This article reviews the components of a successful compensation system, including base pay and bonus pay. The article discusses ways in which law firms can approach these compensation components to develop an effective associate compensation system.



Bringing in outside support to help improve profitability can involve better cost allocation systems and financial reporting, process innovations, cost control, new software, changes to compensation and incentives, marketing, pricing, staffing, facilities, and organizational development.


If your firm is struggling with one or all of these areas or if your firm just wants to do better, we can help.  PerformLaw can quickly diagnose the high-impact issues and help you to apply more of your resources to fixing the issues.