Monday, October 31st, 2016
By Gideon Grunfeld
Many law firms mismanage how they compensate associates. Consider the following real-life examples:
A law firm that represents consumers in litigation has to scramble because a key associate gives notice and the firm ends up increasing the associate’s pay by more than 30 percent to keep her.
Some associates at a corporate transactional firm are paid by the hour while others receive a salary. Both groups of attorneys express dissatisfaction and the firm’s leadership has to scramble to determine how to respond.
An associate at a business litigation firm mishandles the discovery aspects of an ongoing case. When the senior partner asks what happened, the associate surprises the partner by expressing dissatisfaction about how he is compensated.
These examples reflect a troubling truth about associate compensation: Firms are much more likely to have an unreliable process for determining associate pay than a solid compensation strategy. Too often law firms change associate compensation only after they receive a critical mass of complaints. This is a strange and shortsighted way to manage some of the most profitable contributors to the firm.
Moreover, some law firm leaders are surprised that associates didn’t express their dissatisfaction about compensation more openly. Partners are acting as if they have never realized than many lawyers are passive aggressive. And the hallmark of that trait is that you can’t infer happiness or contentment from silence. Passive aggressive people may not complain about their pay, but that doesn’t mean that you can infer that they are happy about it or that they don’t resent or object to it in whole or in part.
In today’s dynamic and fluid market for associate talent, law firms need to take the initiative and establish and communicate a compensation system that is based on a specific compensation strategy. And that system begins by identifying what kind of behavior the firm wants to encourage in its associates. For example, Rainmaking For Lawyers was recently retained by a firm that wanted to redesign its compensation so that it would maximize the chance that certain associates would make partner. The consulting process included detailed meetings with the associates about what they wanted. This in turn led the firm’s managing partner to increase the marketing budget for two key associates as well as increasing how much business development training they received. Different law firms need different compensation strategies and it’s not hard to imagine that some firms might reasonably conclude that it doesn’t make financial or strategic sense to invest more heavily to increase the number of associates who join the partnership. But the decision whether to encourage or discourage associates from becoming partners should be a conscious decision of the firm’s leaders, and not the byproduct of neglect or mismanagement.
Law firms also err when they tell associates that they have to everything—bills lots of hours, develop new skills, learn to manage clients and cases, serve on firm-wide committees, and bring in new matters and clients. “Do everything” is not a strategy. Likewise, too many firm leaders are entirely ignorant of the fact that offering more money will not motivate everyone equally or at all.
Creating and implementing an effective associate compensation system takes time and a strategic focus. But if done correctly, associate compensation can provide law firms with an enormous competitive advantage. Let other firms scramble to respond to dissatisfied associates. You can and should be the firm that aligns your associate compensation system with your broader business goals and objectives.