Partner compensation – it’s a complex topic that consultants have built careers around, firms have committees named for, executive and management committees spend countless hours discussing and, I assume, many managing partners have had dreams interrupted by. So, how does a singular partner with client demands and deadlines, as well as (hopefully) a life outside of the billable hour evaluate their compensation – whether at their current firm or in the context of an offer from a new firm?
Below is a framework for evaluation along with some suggestions from my 20-plus years as a recruiting professional.
Understand Your Current Firm’s Compensation System
For a variety of reasons, many busy lawyers do not have a thorough understanding of their firm’s compensation system. Maybe a new partner orientation meeting was missed or a private session on the topic was never rescheduled. Maybe you formerly understood the system, but over time the system was tweaked (see above re consultants and management time devotion) and the memo(s) on the changes arrived during a trial or in the middle of a major deal. In all events, you are not going to be able to flourish, lead and mentor without understanding your firm’s system.
The first step in educating yourself is to take advantage of the learning your firm provides – there are often new partner retreats and trainings, as well as memoranda describing the model and what the firm believes it is incentivizing by its model. If you haven’t the opportunity for these, meet with a member of your firm’s appropriate committee, your CFO, or even your managing partner and get a tutorial. You are not going to be able to flourish, lead, and mentor without this information – this is true whether you came up through the ranks or lateraled in.
In general, originations are the dominate force shaping partners’ compensation. Billing rates play a secondary role, showing up in a partner’s personal working attorney receipts. In MLA’s recent 2024 Partner Compensation Survey, those two variables explained 72% of compensation differences. Additional factors your firm may use might include credit for leading matters, pro bono, firm management, and citizenship.
You want to appreciate how your firm’s system values your practice and the practice you intend to grow as your career progresses.
Understand Your Current Compensation
As every newly promoted partner (and their spouse or significant other) quickly learns, partner compensation is crazy complicated and not ratable over 12 months. Beyond the timing of dollars which varies dramatically from firm to firm, there are benefits and retirement packages some or all of which may be self-funded. Capital contributions likely need to be made at various points of time. If you don’t have a complete picture of what your total “annual” compensation is and when you should expect it to be paid, you will be unable to evaluate whether you are being paid “fairly” at your current firm or whether another firm’s offer is more lucrative. Your accounting department is a good place to ask for a 12-18 month pro forma.
For Those Evaluating a Move, Understand the New Firm’s System & Your Compensation Offer
You’ve interviewed, painstakingly filled out the LPQ, and are presented with an offer by a firm you are excited to join. Now you need to carefully and thoughtfully understand and appreciate the offer. Candidates are often initially underwhelmed or overwhelmed by offers and want to immediately decline or accept. Don’t be that candidate; instead:
- Ask that someone from the firm verbally walk you through the offer. I am continually amazed how many firms don’t routinely do this. Be aware that nomenclature matters – all firms have compensation “slang” that partners freely throw around assuming it’s used at all firms and with the same meaning. For example, some firms use “target” comp for what other firms call “base” comp. A “contingent bonus” may mean only that the timing of when it is paid can vary from March to April. Receiving an annual bonus may be a rarity at one firm and a significant portion of every partner’s compensation at another. The list goes on. Ask for clarifications of terms – don’t assume it means exactly what it does at your firm or that you can intuit its meaning.
- Ask the firm to prepare a 12-18 month proforma laying out your compensation and relevant firm deductions for benefits, charitable contributions, and payments for capital calls.
- Ask for benefits information so that you can compare with your current package.
- Similar to your analysis of your current firm’s compensation system, endeavor to understand the new firm’s system and what it means for your practice going forward. Ask for a tutorial and any explanatory memoranda. How does this system differ from your current firm’s? Will these differences affect your compensation going forward?
- Now is the time to bring up (or have your recruiter bring up) potentially sticky compensation questions. For example, if you intend to do work for a current client of the new firm – either because you are bringing that work with you, intend to be able to pitch for it, or are being recruited to do this work – will you receive client and/or matter origination credit for that work?
- Think long-term – crystal-ball where you realistically see your practice in 3, 5, 10 and 15 years and think about how the new firm’s compensation system will reward that.
- You will not be alone in asking detailed questions. In MLA’s 2023 Lateral Partner Satisfaction Survey, 72% of respondents reported that they had obtained “adequate and accurate” information about their new firm’s compensation practices and procedures, and of those that did obtain it, 77% were “satisfied” with their compensation.
In sum, do the same due diligence you would recommend to a client when it comes to understanding your current and prospective compensation. It is time well spent in furtherance of your career and your family’s wellbeing.
