Individual Financial Performance Drives Comp Decisions New Survey Reports
(NEWTOWN SQUARE, PA, May 16,2006)--Business origination and personal fees collected are the two most important factors determining partner compensation in law firms according to the newly released Altman Weil 2006 Survey of Compensation Systems in Private Law Firms.
“Over the last decade we’ve seen movement toward a more retrospective, performance-based compensation philosophy in law firms,” notes Altman Weil principal James D. Cotterman. “This reflects the market-driven need to recognize individual performance more quickly in order to attract and retain people. It is too early to tell if this trend will make firms more competitive or possibly more fragile in a market dominated by shifting loyalties.”
Formal Compensation Factors
When asked to rate the importance of 18 formal compensation factors, law firms identified business origination and personal fees collected in a tie for the top ranking. Client responsibility, case responsibility, client service, legal expertise and profitability of work were cited in the second tier of importance.
Contribution to firm management and cooperativeness within the firm fell at the midway point in the 18 compensation factors ranked. Professional involvement (such as writing, speaking or teaching), and seniority are the least important compensation metrics, according to the Survey.
Origination Credits
A majority in all but the smallest law firms use business origination credits as part of their compensation process. The Survey reports 57.4% of all law firms use formal origination credits, as do 63.4% of firms with 100 or more lawyers. In those firms that track origination, 80.4% report that partners receive the credit as long as the client generates work for the firm.
Two-Tiered Partnerships
There are two-tiered partnership structures in 48.7% of all law firms, according to the survey. 85.4 % of firms with 100 or more lawyers report having more than one class of partners. These numbers have risen sharply since the last survey in 2003, when 31.4% of all firms and 65.6% of large firms reported two-tiered partnership structures.
Overall, in the lower tier of partnership, 30.2% of partners make capital contributions to the firm; 22.2% have voting rights in the election of senior firm management; and, 34.1% share in profits beyond their salary or draw.
Associate Compensation
The 2006 survey reports that 56.1% of law firms with 100+ attorneys use a lock-step system by class for associate compensation. The same is true for 45.4% of 50-99 lawyer firms, and only 21.4% 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 29% of new associates overall, and to 65.9% of associates at 100+ lawyer firms. 89.2% of all associates are eligible for year-end bonuses.
Compensation Committees
About one-third of all firms (31.3%) have a distinct Compensation Committee according to the survey. In 27.9% of firms, the Executive Committee makes compensation decisions; and in 29% of firms the entire partnership is responsible. In firms with 100 or more lawyers, 46.3% have a separate Comp Committee; 48.8% rely on the Executive Committee; and 2.4% leave the decision to the firm’s Managing Partner.
About the Survey
The Altman Weil 2006 Survey of Compensation Systems in Private Law Firms is based on data collected from 263 law firms in the fall of 2005. The Survey is available from Altman Weil Publications at www.altmanweil.com/CompSystemsSurvey.
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 about Altman Weil visit www.altmanweil.com.
Contact Information
James D. Cotterman
Altman Weil, Inc.
610-886-2000
jdcotterman@altmanweil.com
Order the survey: www.altmanweil.com/CompSystemsSurvey.
