DANA POINT, Calif. — Law firm compensation, in flux since the last recession, won’t return to the old status quo. More firms are linking compensation to firm-wide objectives, while compensation committees want to spread wealth and acknowledgement among associates and allied legal professionals as well as partners.
The panelists of a session titled, A House Divided: Assessing Employee Compensation Models Across the Firm, held last month at the 26th Annual Law Firm Marketing Partner Forum, agreed that in an era of law firm dissolutions, increased lateral hiring, and revolving-door partnerships, firms have to revamp traditional compensation models.
As moderator Rod Osborne, managing director of Law Firm Management at Major, Lindsey & Africa, said in his opening remarks, more firms are “moving away from compensation models based on individual production and origination in favor of newer models rewarding client experience and teamwork. That’s harder to measure.”
J. Stephen Poor, partner & chair-emeritus at Seyfarth Shaw, recalled to the panel that around 2004 his firm came to the belief that the way law firms were serving their clients was not sustainable. “Clients needed different behaviors — more team-based behaviors,” Poor said. “We needed to recognize more hybrid teams, more allied professionals.”
Seyfarth found compensation to be essential to encourage behavioral changes. “If you’re not using compensation structures to support whatever behavioral changes you need, don’t waste your time,” Poor explained. “If that [change] is not complemented by your compensation system, it becomes a very difficult barrier to break down.”
Locating Lawyer Expertise
Panelist Todd Noteboom, a partner and member of the Executive Committee and co-chair of the Financial Services and Insurance Industry Group at Stinson Leonard Street, said his firm adopted a strategic plan in 2016 centered on seven key industries where it had considerable knowledge, expertise and the greatest potential for growth. To that end, and with at least some lawyers in the firm, “lawyer expertise needed to be more focused and compartmentalized,” Noteboom said. “Being a generalist no longer works very well in a legal market that has become highly specialized, and we saw opportunities to help our lawyers focus even more on the clients and industries the firm serves throughout the country.”
Compensation is one of the tools that successful firms use to help encourage lawyers to make these sorts of personal investments and changes, Noteboom added, which can only happen when there is alignment between the firm’s strategic goals and the ways that it thinks about compensating the firm’s partners.
Goulston & Storrs aims for “compensation [to be] 100% subjective and retroactive,” according to panelist Joshua Davis, director & business development co-chair of the firm. The firm’s compensation committee is completely repopulated annually, so that each committee could have “greatly different priorities in rewarding partners.”
Why undertake such turnover? Davis said it’s to make “compensation every year a conversation about how we work together and how we collaborate for clients. Over the last three years, 40 different people have helped determine how we pay one another.”
The Need for New Voices
Law firms should expand the inputs to evaluate their members, not just have partners sitting around a table in a conference room. For example, Goulston & Storrs ran individual interviews and a group session with its litigation associates, asking them for “360-degree” partner reviews, Davis said, adding that after the results were summarized (and made anonymous), they were useful in assessing how individual partners contributed to the community.
The panel agreed that there’s also a need to better acknowledge and compensate allied legal professionals, although firms shouldn’t have different classes of lawyers and “non-lawyers.”
After all, Seyfarth’s Poor said, “you don’t go to doctor’s office and see the ‘non-doctor.’ You see the nurse practitioner.” The role of allied professionals in delivering, designing, and selling legal services is ever more essential to a firm’s business, so “the need to move away from this lawyer/non-lawyer mindset is absolutely critical,” he added.
By centering compensation on rewarding team- and firm-related strengths, what effect does that have on lateral hires from other firms? Panelists said they’ve often found compensation isn’t the make-or-break factor. “When we are recruiting laterals, we focus on what our clients are telling us about candidates and where we should build,” said Catherine Zinn, chief client officer for Orrick, Herrington & Sutcliffe. “And when you start a conversation with a prospective lateral saying, ‘These three General Counsels we know well say you are great at what you do’ — it’s a great conversation starter.” Further, laterals consistently tell us they were attracted to Orrick because we have a strategy and we stick to our knitting, Zinn added.
Panelists also agreed it’s important to weed out lateral prospects who seem like “rental lawyers” — they’ll come over for a certain salary, work their contract, and then look elsewhere for more money. When Seyfarth has interviewed laterals from firms whose compensation models revolve around partners being individually rewarded for bringing in business, they’ve often found “the cultural imprint this leaves on people is so strikingly different than the way we want our lawyers to behave,” Poor noted.
It’s gotten to the point where there are “firms [where] we just don’t recruit laterally from anymore because we know their system works that way, and it’s not worth the effort,” he said.