Trends in Partner Compensation

Yesterday, I participated in a teleconference hosted by Hildebrandt. Here are the main points raised by the speaker:

1. A high percentage of firms currently have open compensation systems (i.e. where attorneys know what their partners earn) but the trend is to move away from these systems.
2. Money alone is an ineffective motivator (unless it is a lot of money.) Internal fairness is more important.
3. A good practice is to conduct pre-compensation interviews with each partner and focus on the future (i.e. the goals for the coming year for that partner.) It is best to have two partners in the room to conduct the interview.
4. It is common now for partner income to fluctuate (up and down). This reflects a maturing market for legal services and the need to keep the “keepers” happy.
5. Practice groups are playing a bigger role now in law firm management.
6. The most successful firms use subjective rather than formulaic (or objective) systems to set comp.
7. Seniority is becoming less of a factor in setting partner comp.
8. What is keeping the client at the firm remains the number one factor in setting partner comp.
9. Firms are starting to move away from lock step systems (even at the associate level.)
10. Comp differentials from highest to lowest paid partner are increasing (5:1 or 6:1 is not uncommon.)
11. Good practice is to limit the number of salary steps so that partners do not overly compare their comp with other partners.
12. Hildebrandt advocates using a prospective comp system with a bonus pool at the end of the year of 4-15% to fix any “mistakes” that might have been made during the year.

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