Law Practice Management Asked and Answered Blog

Category: Partnership Ownership Interests

Nov 28, 2010

Partner Compensation Metrics – What Is Important – What Matters

Question:

I am the managing partner of a 14 attorney law firm located in Nashville, Tennessee. We have 8 equity partners. The firm represents business and other institutional clients and handles transactional work as well as litigation. Each partner over the years has accumulated "partnership interest" percentages and these interests are used totally to determine annual compensation as well as ownership in the firm. The only numbers that matter in our firm are billable hours – not dollars and billable hour reports are all that we have ever looked at when reviewing associate performance or partner contribution. We are now beginning to question the wisdom of this approach and we should be considering more than hours?

Response:

Billable hours alone is a poor indicator of associate or partner performance and you should include more measures/metrics in the analysis. More and more law firms today realize that partner contribution and value goes beyond and involves much more than “billable hours” and their compensation systems incorporate other factors into the analysis. Billable hours is just one metric in the overall equation. Many law firms focus on various measures of revenue dollars – fees billed, fees collected, etc. The next question is what kind of fee dollars – working attorney, responsible (managing) attorney, or originating attorney. Fees collected by working attorney seems to be the primary focus of smaller law firms. Origination (attorney that brought in the client) attorney fees collected is often part of the mix as well. Very seldom do we see responsible attorney fees collected considered. We believe that more firms need to include this measure as well.

As attorneys evolve from associates to partners – roles and responsibilities changes and so must the scorecard. If you want partners to build teams, delegate, and leverage the work of others – working attorney fees collected used by itself no longer makes sense. A measure of matter and team management is needed as well as a measure of individual production.

A focus totally on billable hours or working attorney fee collections places little, if any, emphasis on client origination, responsibility for matter management, or any other factors such a mentoring, associate management and training, marketing, and firm management which are critical to the long-term success of the firm.

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

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