Partner Compensation Archives

18 12, 2012

Enhance Your Chance of Getting Good News at the End of the Year

2019-03-20T22:21:20+00:00By Debra L. Bruce, JD, PCC.|Comments Off on Enhance Your Chance of Getting Good News at the End of the Year

This is the time of year when many lawyers have a meeting with a supervisor or a compensation committee to discuss their performance over the past year. Many big firms, corporations and government agencies have instituted procedures that give the attorney an opportunity to submit a self-evaluation in advance of their performance review. Many small law firms are more informal, or even haphazard about the process, however.

If there is an established procedure, follow the guidelines or instructions. When an organization doesn’t have a formal review procedure, I recommend that my clients prepare a concise memo, email or other written communication summarizing their accomplishments of the past year. Most associates just wait anxiously, but passively for the news. They may think the partners are aware of what they have been doing all year, or perhaps they think it is safer to stay under the radar. Maybe they just don’t know what else to do. […]

22 05, 2012

Sample Partnership Agreement Provisions Respecting Compensation – Appendix A (Part 7 of 7)

2019-03-20T21:00:29+00:00By Debra L. Bruce, JD, PCC.|3 Comments

This is the Appendix A mentioned in the previous seven articles discussing structures that law firms tend to adopt for partner compensation. In Part 1 we discussed the Monarch structure, in Part 2 the Parity structure, in Part 3 the Executive Committee Monarchy, in Part 4 the regular Lock Step, in Part 5 the Modified Lock Step, and in part Part 6 the Eat What You Kill structure. Appendix A provides an example of some partnership agreement language in a Modified Lock Step compensation system.

APPENDIX A
to Partnership Compensation Plans

Selected Provisions Of
Agreement Of Limited Liability Partnership
Of
A & B, L.L.P.
[Not Intended As A Complete Partnership Agreement]

This AGREEMENT OF LIMITED LIABILITY PARTNERSHIP of A & B, L.L.P. is entered into to be effective as of the __ day of ___, 200_,

by and among A (“A”) and B (“B”) (collectively, the “Partners”) pursuant to the provisions of the [State] [Partnership Law], and according to the terms and conditions set forth herein.

NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS: […]

21 05, 2012

Partner Compensation Plans – The Eat What You Kill, EWYK (Part 6 of 7)

2019-03-11T22:21:00+00:00By Debra L. Bruce, JD, PCC.|2 Comments

This is the 6th article in a series of 7 discussing structures that law firms tend to adopt for partner compensation. In Part 1 we discussed the Monarch structure, in Part 2 the Parity structure, in Part 3 the Executive Committee Monarchy, in Part 4 the regular Lock Step, and in Part 5 the Modified Lock Step.

Eat What You Kill (EWYK)

Description
Each lawyer’s compensation is based on the revenues she generates. Usually there is some kind of formula that attempts to account for overhead, and then distributes all remaining profits to the lawyers based on their collections. In some systems a flat dollar amount is determined for overhead per lawyer, by dividing up the sum of fixed and predictable expenses, such as rent and shared staff salaries. Everything the lawyer bills and collects in excess of the fixed overhead figure gets paid to that lawyer after subtracting certain firm expenses directly associated with that lawyer such as business development expenses, retirement plan contributions, and salaries of staff or associates who work mostly for that attorney. In that model the firm is more akin to an office sharing arrangement than a partnership.

A variation of the EWYK model does provide for sharing of risk. The firm’s profits are determined, and distributed in accordance with a formula that averages the collected revenues attributable to a partner over multiple years (usually two to four). The averaging slightly shaves off peaks in income, to provide support from partners on the upside of […]

18 05, 2012

Partner Compensation Plans – The Modified Lock Step (Part 5 of 7)

2019-06-25T16:27:46+00:00By Debra L. Bruce, JD, PCC.|2 Comments

This is the 5th article in a series of 7 discussing structures that law firms tend to adopt for partner compensation. In Part 1 we discussed the Monarch structure, in Part 2 the Parity structure, in Part 3 the Executive Committee Monarchy, and in Part 4 the regular Lock Step.

Modified Lock Step

Description
Many firms have modified the lock step model to allow a committee to subjectively reward or punish behavior. The modification helps the firm to encourage essential behaviors such as business development, high productivity, recruiting, training and mentoring associates, management, and client relationship maintenance. It also provides the flexibility to bring underperforming partners into line, without having to completely expel a partner.

Some of the modifications may include the ability to promote a partner to a higher level earlier than the other classmate partners, or demote a partner to a lower level. There may also be a “slush fund” for allocating bonuses to reward desired behavior. Appendix A to this article (which will appear in Part 7 of the seven-part series) contains an example of provisions that might be included in a modified lock step compensation plan. The author extends her gratitude to Bill McDonald, a partner at Thompson & Knight LLP, whose practice includes advice on law firm formation, for the provisions included in Appendix A.

In Appendix A, the agreement provides for seven lock step levels, but permits the management committee to assign each partner to the appropriate level […]

17 05, 2012

Partner Compensation Plans – Lock Step (Part 4 of 7)

2019-03-11T22:32:20+00:00By Debra L. Bruce, JD, PCC.|3 Comments

This is the 4th article in a series of 7 discussing structures that law firms tend to adopt for partner compensation. In Part 1 we discussed the Monarch structure, in Part 2 the Parity structure, and in Part 3 the Executive Committee Monarchy.

Lock Step

Description

This model is used mainly in large, stable, well-established firms that have a lot of institutional clients. It rewards seniority. Usually, all of the lawyers who become partners in the same year are a class, and make the same compensation. The class as a whole receives an increase in points, which are the basis of allocating profit distributions, when they are elevated to the next level. Typically, the spread between the salary of the highest paid partners and the lowest paid partners is not that large – 3 or 4 to 1 is not uncommon.

When It Works Well […]

16 05, 2012

Partner Compensation Structures – Executive Committee Monarchy (Part 3 of 7)

2019-03-19T21:28:11+00:00By Debra L. Bruce, JD, PCC.|3 Comments

This is the 3rd article in a series of 7 discussing the different kinds of partnership compensation structures that law firms tend to adopt. In Part 1 we discussed the Monarch structure, and in Part 2 the Parity structure.

Executive Committee Monarchy

Description
Both of the prior structures are usually only found in small firms of ten partners or fewer. In a larger firm, the Monarch structure may be expanded to a ruling executive committee. In this situation a rather stable and predictable executive committee functions like a single monarch. Usually they are the founding partners or otherwise the most experienced lawyers in the firm.

When It Works Well
This structure works when the […]

15 05, 2012

Partner Compensation Structures – Parity (Part 2 of 7)

2019-03-19T21:26:59+00:00By Debra L. Bruce, JD, PCC.|4 Comments

This is the 2nd article in a series of 7 discussing the different kinds of partnership compensation structures that law firms tend to adopt. In Part 1 we discussed the Monarch structure which involves one partner who rules over the others on compensation issues.

Parity

Description
All of the partners split the profits of the firm evenly. This format usually comes out of a situation where two or three lawyers of similar vintage are friends, and decide to form a partnership.