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May 20, 2014

Law Firm Compensation – Bringing in an Associate with a Small Book of Business

Question:

I am the sole owner of a law firm in Walnut Creek, California. I have three associates and five staff members in the firm. I am looking to hire another associate. The associate I am considering has been out on his own for five years – no office and no employees. He would bring around 30 active matters with him. I was thinking of paying him a salary with a discretionary bonus based upon performance. Fees originated and generated would be a major component of the performance determination that would impact future salary increases, bonuses, and eligibility for partnership. However, I believe that I must do something with regard to the business that he brings with him. I would appreciate your thoughts and suggestions:

Response:

I agree with your general approach with regard to his compensation. Payments for originations for associates gives me pause.  However, I believe you have to treat business that he brings with him differently. Here are my thoughts:

  1. Create a list of the pending matters that he will bring with him. The list should list the A/R and WIP for time bill matters. For flat fee matters whether the fee has been collected and spent, whether there will be any more fee, the amount of work that remains to be completed (percent), and the estimated hours required to complete the work. For contingency fee work – a list of the expected fee - low and high – for matters in progress.
  2. He should get 100% of A/R and unbilled WIP earned but not billed or paid before he joins the firm. 20% of the work done after he is with your firm.
  3. I would pay him 20% of the fees earned (prorated) for flat fee matters while the matter is with your firm if a fee will be due and paid. If not – your firm should be entitled to an offset for the overhead servicing his work for which there will be no fee forth coming.
  4. Once the matters on the list are concluded any future work that he originates would be "firm accounts".

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John W. Olmstead, MBA, Ph.D, CMC

Posted at 07:36 PM in Compensation
Tags: Associate, book, Business, compensating, Compensation, Firm, Law, of, Small, With

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