Pricing Yourself: Partner Comp Models Explained

Law firms use partner comp models to share profits among partners. The four main compensation models in Illinois are profit-sharing, lockstep, merit-based, and formula-based. As a young attorney or associate intending to rise to a partner, you must find firms with compensation models that align with your career goals. You should also consider a firm that pays market-value salaries and whose model aligns with its goal, mission, and values.

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How Law Firm Partner Compensation Works

Compensation in most firms is based on remuneration models. Some firms handle top-paying practice areas in lucrative markets. Others prefer going in-house with a tight-knit organization structure. The latter may even focus on less paying practice areas. Thus, some law firm partner compensation models are subjective, while others are structured. The four main partner compensation models include:

Profit-Sharing Model

A profit-sharing model combines both law firm profitability and compensation. In this model, partners share a percentage of the profits based on the firm’s quarterly or annual revenue. For example, let’s assume a firm using a profit-sharing comp model recorded $1 million in annual profit and has 10 equity partners. In such a case, each partner’s salary will be calculated as follows:

$1,000,000/ 10 partners = $100,000 per partner

But that’s only accurate if the law firm divides the profits equally among the 10 partners. Many firms have senior equity partners. Such legal partners receive higher compensation than non-equity partners. A legal partner in Chicago earns between $218k and $407k per year.

Formula-Based Model

A formula-based remuneration structure rewards partners based on individual performance. The salary depends on metrics, such as billable hours, business secured for the firm, and client revenue. Such a model benefits firms because it fuels productivity. Top performers are often the beneficiaries.

However, this system has its disadvantages. For example, it promotes unhealthy competition and increases employee burnout. Since it’s based on billable hours, employees are pressured to work beyond ordinary hours to meet deadlines.

Lockstep Comp Model

In a lockstep compensation model, a legal partner receives higher salaries based on their years of service. By attributing compensation to seniority, a lockstep comp model fosters trust, loyalty, collaboration, and transparency. In a way, this compensation system helps the firm retain top talent.

Merit-Based Comp Model

This partner compensation system pays attorneys based on their contributions to the firm’s revenue. In other words, the more you contribute, the more you earn. For example, a partner who contributed $800,000 to the annual revenue will receive higher pay than one who brought in $500,000 in business. Therefore, to level up your earning potential, you may want to engage more in business development activities.

Key Factors That Influence Partner Pay

• Firm’s size and profitability: The larger the firm and profit margins, the higher the salaries and bonuses paid to partners.
• The firm’s geographical location: Firm location influences partner recruiting and pay. Major cities and towns have higher concentrations of legal clients. Therefore, partners in big cities like Chicago tend to have “big-money” clients compared to those in less competitive markets.
• Practice area: The legal practice areas a firm focuses on also influence partner pay. For example, litigation and corporate law are top-paying practice areas. A partner in a firm that focuses on such areas is likely to receive higher pay than one handling family or immigration law.

Choosing the Right Compensation Model for Your Career Goals

Compensation is a key consideration if you’re looking to become a legal partner. The following tips can help you choose the right compensation model for your career goals:

Evaluate the Comp Model Against the Firm’s Goals and Values

Carefully read the mission statement and value proposition of the firm you intend to join. You should then check if the compensation model aligns with the goals.

Choose a Firm that Pays Market-Value Salaries

Attracting and retaining top legal talent is a challenge for firms. Firms that provide fair, market-value salaries attract and retain top associates and partners. Find out what fair compensation would be by considering the position, practice area, and geographical location.

Client-Experience-Centered Comp Model

Law firm candidates focused on quality client experience should choose firms that provide bonuses based on positive reviews. In such an attorney pay structure, calculations depend on the number of referred clients and positive public testimonials. Employees with higher scores receive higher bonuses.

Astor Professional Search is your trusted partner when it comes to finding a firm that aligns with your career goals. We’ll get to know your personal interests and career goals so that we can offer you a personalized job search and placement service. Contact us to schedule an appointment.

Frequently Asked Questions (FAQs)

What are the most common law firm partner compensation models?

There are four main partner comp models. They include profit-sharing, lockstep, merit-based, and formula-based models.

How do origination credits impact a lawyer’s annual compensation?

A merit-based comp model bases partner salaries on origination credits. These benefits reward partners who bring new clients to the firm, contributing to its bottom line. Thus, the more origination credits a lawyer accumulates, the bigger the paycheck.

What should I consider before joining a firm as an equity or non-equity firm?

You should ensure the firm provides fair, market-value salaries. Additionally, the firm should have a comp model tied to its goals, values, and mission. You must also consider a compensation scheme that rewards partners who offer an excellent client experience.