Network Firm News
Fees Collected, Business Origination Top Determinants in Partner Compensation, Survey Reports
Personal fees collected and business origination are the two most important factors determining partner compensation in law firms according to the newly released Altman Weil 2003 Survey of Compensation Systems in Private Law Firms. Contribution to firm management falls at the midway point in the 17 compensation factors ranked; and community involvement, professional involvement (such as writing, speaking or teaching), and seniority are the three least important compensation measures, according to the Survey.
“These findings reflect what we’re seeing in the law firm market,” notes Altman Weil principal James D. Cotterman. “Increasing competition and a slow economy combined with a desire to generate quick increases in partner income create a sharp focus on bottom-line profitability. Behaviors contributing to that focus are the ones rewarded.”
Business Origination Credits
Firm size is a determining factor in the existence of a formal system of business origination credits. The Survey reports 71.9% of law firms with 100 or more attorneys use formal origination credits in the compensation process, compared to 63.6% of firms with 50-99 lawyers, and only 40.1% of firms with fewer than 50 attorneys.
“It is obviously easier to have a good intuitive understanding of how new business is generated in smaller firms than it is in larger firms,” Cotterman explains. “However, it is good to see many larger firms approach this issue without resorting to formal credit systems.”
Two-tiered partnership structures are found in 65.6% of law firms with 100 or more lawyers, but in only 28.1% of smaller firms. Overall, in the lower tier of partnership, 25% of partners make capital contributions to the firm; 27.2% have voting rights in the election of senior firm management; and, 53.3% share in profits beyond their salary or draw.
The 2003 Survey reports that 62.5% of law firms with 100+ attorneys have some sort of lock-step feature by class for associate compensation. The same is true for 42.4% of 50-99 lawyer firms, and only 13% of smaller firms. When a lock-step program is not in place, the performance characteristics that most affect associate salary are: billable hours, partner ratings, business origination and personal fee receipts.
Signing bonuses were paid to only 24.2% of new associates overall, and to 50% of associates at 100+ lawyer firms. 87.8% of associates are eligible for year-end bonuses.
Larger law firms rely more heavily on compensation committees, with 59.4% of 100+ lawyer firms having separate committees, compared to 45.5% of firms with 50-99 lawyers, and 18.8% of smaller firms. The most common configuration is that of a separate committee that may overlap the firm’s management group. Committee members in a majority of firms are elected by the partners.
The Altman Weil 2003 Survey of Compensation Systems in Private Law Firms is based on data collected from 302 law firms in the fall of 2002. All Survey data is reported by size of firm and form of organization, including proprietorship, partnership, Professional Corporation, LLC and LLP. The Survey is available from Altman Weil Publications for $325. Orders and inquiries may be made by calling 1-888-782-7297 or by visiting the firm’s website at https://store.altmanweil.com/.
Altman Weil Publications conducts and publishes numerous surveys on the legal profession including the Survey of Law Firm Economics, the Managing Partner and Executive Director Survey, the Paralegal Compensation Survey, and the Retirement and Withdrawal Survey for Private Law Firms. For additional information visit our website at http://www.altmanweil.com/.