Law Practice Management Asked and Answered Blog
Category: compensating
Sep 20, 2017
Compensating Your First Associate Attorney in a Law Firm
Question:
I am the owner of a law practice in Belleville, Illinois. My practice focuses on real estate, estate planning and administration, and bankruptcy. I have three legal assistants. While I have been in practice for ten years, I have never hired an associate. I have a busy practice and now is the time. I have identified a candidate with six years experience that I want to hire. He has business that he can bring with him. He has been working with a larger firm as an associate and has been paid a straight salary. My next step is to make him an offer but I am struggling with how to pay him. I would like to hear your thoughts.
Response:
Some small firms put associates on an eat-what-you kill system based upon fee revenue collected from clients they bring in and fee collections from other matters they are assigned. They are they paid a percentage – ranging for thirty to forty percent when the fees are paid. However, in most firms associates are paid a salary and possibly a bonus based upon performance. Bonuses may be discretionary or formulaic based upon performance factors such as billable hours, working attorney collected fees, client origination collected fees, goal attainment, signed engagements, etc. Personally, I think a salary plus and discretionary bonus is the best approach for new associates.
However, in your case with an associate that is more seasoned and that has a book of business I think you should consider a salary with a formulaic bonus based upon his working attorney fee collections and client originations. Here are the mechanics:
- Pay a set salary.
- Establish a bonus threshold using a multiple of three times salary.
- Establish a weighted performance measure and weight working attorney fee collections .60 and client origination fee collections .40. For example, if the associate brings in a client and does all the work he/she would receive 100% fee credit. If the associate works on a matter but does not bring in the fee he/she would receive a .60 fee credit.
- The associate would be paid a bonus of 20% for weighted performance measure in excess of the threshold. For example, if the associate is paid a $80,000 salary the threshold would be $240,000. If the weighted performance measure is $300,000 the amount in excess of the threshold would be $60,000. Thus the associate would be paid a bonus of 20% times $60,000 or $12,000.
I would also set a minimum performance expectation of $240,000 for the salary that is being paid.
You could also include non-billable goal attainment bonus as well but you can always add that later.
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John W. Olmstead, MBA, Ph.D, CMC
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:
- 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.
- 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.
- 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.
- 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
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