Near and Dear – Understanding Your Partner Compensation

Partner compensation – it’s a 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. With such a big and complex topic, how does a partner who has client demands and deadlines, as well as a life outside of the billable hour, evaluate their own compensation – whether at their current firm or in the context of an offer from a new firm?  Below are a few suggestions from my career as a corporate partner and recruiting professional.

Understand Your Current Firm’s Compensation Model 

This may seem obvious, but for busy lawyers – especially those who “made partner” at their firm – this is not always the case. Additionally, firms often tweak their models (see above re: consultants and management time).

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, the main levers are originations (many firms have client origination and matter origination buckets), personal production or working attorney receipts which factor billable rate and hours, and a variety of other factors such as pro bono, firm management, and attaining diversity, equity, and inclusion goals. Understand how your firm values the levers it uses and what behaviors it is trying to incentivize.

Understand Your Current Compensation

Partner compensation is crazy complicated and not ratable over 12 months. For example, some firms have smaller monthly draws early in their fiscal year ramping as the year progresses, many have quarterly tax distributions or true-ups, as well as year-end bonuses or final distributions that are paid incrementally the following year.  Beyond the timing and predictability of dollars coming in, there are dollars going out.  Benefits and retirement packages may require self-funding. Additionally, capital contributions may need to be made at various points over the course of the year.

Understand the big picture and the small stuff. If you don’t have a complete picture of what your total compensation is, you will be unable to evaluate whether you are being paid “fairly” at your current firm, as well as whether another firm’s offer is more lucrative.

Evaluating a Lateral Compensation Offer

You’ve interviewed, filled out the dreaded LPQ, and are presented with an offer by a firm you are very excited to join.  Congratulations – BUT….

Now you (and perhaps your significant other) need to appreciate the many subtleties of the offer. Often candidates are underwhelmed or overwhelmed by offers – and want to immediately dismiss or accept without spending the time to understand the offer. Don’t be that candidate.

Do the following:

• Ask that someone from the firm walk you through the offer. If you want, ask your recruiter to be on the call. 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 simply call “base” comp.  A “contingent bonus” at one firm may mean you only receive it if you hit a certain metric; at another it means simply that the timing of when it is paid out may fluctuate slightly.  Bottom line: ask, don’t assume.
• Ask the firm to prepare a monthly proforma for 12-18 months laying out your compensation and relevant firm deductions.
• Ask for benefits information so that you can compare.  Don’t assume it’s the same as your current benefits package or that the costs are the same. In MLA’s 2020 Lateral Partner Satisfaction Survey only 23% of respondents reported speaking with their new firm’s benefits manager.
• Understand the new firm’s compensation system and what it means for your practice going forward. Ask for a tutorial and any memoranda. Again, understand the nomenclature.
• How does the new 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, 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, either in full or in part?
• Compare and contrast your current compensation with other offers.
• Think long-term – crystal-ball where you realistically see your practice in three, five, 10 and 15 years and think about how your current firm’s or a new firm’s compensation system will reward that.

In sum, do the same due diligence dive you would afford a client when it comes to understanding your current and prospective compensation. While hopefully the exercise won’t keep you up at night — it is time well spent in support of your career.  Per MLA’s 2020 Lateral Partner Satisfaction Survey, lateral partners who reviewed their new firm’s critical financial documents prior to moving were much more likely to be “very satisfied” with their compensation than those who failed to undertake that due diligence.

Be that partner.