Compensation is a top reason why people stay at their firms—and you can’t afford to get it wrong. Losing just one associate may cost you at least half a million dollars. Partners can move laterally. Replacing a paralegal can cost twice (or more) their annual salary.
As firms optimize their compensation models, traditional lockstep is disappearing in favor of formula-based compensation or hybrid systems. The newer schemes are often data-driven, and tend to be more complex. But they offer incredible opportunities to reward the right outcomes and make people feel truly valued.
Bonuses tend to be more data-driven than salary
Monetary compensation usually takes the form of monthly salaries and periodic bonuses.
- Baseline salaries. Associate and professional staff receive monthly salaries regardless of firm profitability. Non-equity partners are more likely to get a baseline salary than equity partners, but firms vary.
- Bonuses/profit-sharing. Equity partners own the firm, and are primarily compensated through profit-sharing. Non-equity partners, associates, and professional staff may receive bonuses, and some are based on firm profit.
Depending on your compensation model, you might only use data to calculate annual bonuses, or you might use data to calculate every payment for some people.
Your compensation system determines your data needs
Compensation schemes tend to fall into 3 broad categories with different key metrics.
1. Lockstep or modified lockstep follows seniority (mostly).
Seniority controls everything in these firms: salaries, bonuses, and profit sharing. Lockstep systems are transparent, and they reward loyalty and teamwork. But they tend to have problems recognizing superstars, addressing underperformers, and managing succession. Thus, some lockstep firms consider performance metrics as well.
Key metrics: Years of service, firm profit, performance metrics like origination credits, billable hours, revenue collected, individual profitability.
2. “Eat what you kill” (EWYK) is laser-focused on revenue per lawyer.
At the partner level, EWYK compensation is determined solely by how much revenue the attorney collects. Overhead, including associate and professional staff salaries, is usually divided among the attorneys. This model rewards individual achievement but not activities like mentorship, teamwork, and participation in firm management.
Key metrics: Revenue collected, share of overhead, use of associate and staff time at the matter level.
3. Formula-based rewards valued outcomes.
By assigning points to certain activities, formula-based compensation ties pay to qualitative and/or quantitative achievements (e.g., billable hours, managerial duties, committee, mentoring). This approach can help a firm coalesce around culture and values. The main challenges with formula-based systems are choosing metrics and avoiding excessive complexity.
Key metrics: Origination, billables, collected revenue, leadership participation, profitability, nonbillable work, pro bono.
Get the data you need to keep the talent you’ve grown
You’re ready to take your law firm into the future. You need software that’s just as forward-looking. Orion’s financial management and business intelligence platforms power intricate formula-based systems, tried-and-true lockstep, and anything else you dream up. Features include:
- Customizable reporting to track the metrics you value (self-serve + built for you)
- Easy splitting of origination credits and other tracked metrics
- Detailed, real-time insights into firm and attorney performance
- Automated collections help to maximize revenue
Ready to learn more about Orion? Schedule a demo today.