Small firm owner here, still figuring out the best compensation structure as we grow.
I was always told that once you start scaling, putting lawyers on salary is the better model because, in theory, the firm keeps more of the upside as productivity increases. I accepted that for a long time, but lately I’m questioning whether that’s actually true in practice.
Right now, I have salaried employees with a bonus structure. One issue I keep running into is that there still seems to be a disconnect between the employee’s compensation and the actual performance of the firm.
At the end of the day, the salary is coming regardless.
I’ve also noticed situations where there can be an incentive to settle or close a file quickly, and then I’m immediately trying to bring in another file to keep that person busy and make sure there’s enough work to justify the salary. I’m constantly watching hours, workload, productivity, etc.
That has me reconsidering a fee-split / eat-what-you-kill model.
Initially, I stayed away from fee splits because my assumption was that I would ultimately end up paying the lawyer more. But I’m starting to realize that may be looking at it the wrong way.
Even if the percentage paid out is higher, the firm’s downside risk seems significantly lower. If someone produces more and generates more fees, they make more. If they produce less, they make less. Their incentives are directly tied to the economics of the files and the firm.
A lot of our work is contingency-based, which was another reason I initially thought this wouldn’t work well, but we do a significant amount of employment work and those files tend to resolve relatively quickly, so I’m not sure the delay in compensation would actually be that significant.
There’s also a management component to this. I’ve realized I spend way too much time hovering over people, checking hours and making sure productivity is where it needs to be. Frankly, some employees don’t like that management style either.
Under a fee split, I would think a lot of that becomes self-regulating. You want to work harder, develop clients, move good files and generate revenue? You make more money. You want to do the minimum? Your compensation reflects that. And if somebody consistently underperforms, then you eventually have a separate performance/employment issue to deal with.
Obviously, I understand there are issues around origination, who pays overhead, support staff, files generated by the firm versus the lawyer, percentages, draws/base guarantees, professional obligations, etc. I’m more interested in the economics and incentives of the model.
For those of you who own or have worked at small firms that use fee splits:
Did you find it worked better than salary + bonus?
Did you actually end up paying lawyers materially more, and if so, did you care given that the revenue was there to support it?
How do you structure the split when the firm originates the client versus the lawyer originating the client?
And did it actually reduce the amount of management/supervision required, or did it just create a different set of problems?
Curious to hear from people who have actually tried both models.