Moving lawyers from salary to commission is a goal of many law firm owners.

Law firm owners lose sleep worrying about making payroll. Rarely do I meet an owner who wouldn’t prefer to have some variability in payroll based on the performance of the firm.

The Benefits of Variable Pay

Most law firms feel stuck paying salaries. It’s especially painful to meet payroll during a down period. Making the payroll variable—up during up times and down during down times—reduces stress for the law firm owners and minimizes the need for large cash reserves.

Sure, in a bad month, it might mean an associate earns less. But in a good month, it means the associate shares in the goodness. Mostly, the need for variability is a reflection of the current reality for most undercapitalized law firms.

A decade ago, lawyers expected a salary with increases over time. That was a time-honored tradition, and most firms simply paid the piper. The only uncertain piece of an attorney’s compensation related to occasional bonuses around holidays or extraordinary accomplishments.

Nine Steps to Switch to a Commission-Based System

So how do you shift a lawyer who has been earning a steady salary away from that fixed system over toward more variability? How do you make the change without losing your people?

Unfortunately, most law firm owners get concerned about making a change when they’re under financial pressure. They’re worried about payroll for the current month and feel like they need to do something right now. Doing something now—anything—is likely to lead to negative fallout.

The key to changing your payroll is to do it in advance of feeling payroll stress. You want to start making changes when things are going well. You want to make the change when business is booming and cash isn’t an issue. Do it during the good times to be prepared for the bad times.

Here’s what you do:

1. Make the decision to shift from fixed payroll to variable. Come up with a compensation plan. Personally, we use a very fixed system with minimal variables. Keep it simple. We pay a percentage of the gross fee to the associate doing the work.
2. Wait for a good period with strong revenues.
3. Approach the associate with leadership skills. Getting buy-in from that person is where you want to start.
4. Explain the new system. There should be an upside and a downside.
5. Set a time period during which the associate will only experience upside. For example, let’s say you’re moving from fixed salaries to paying the associate 20 percent of the gross revenue he produces. Offer to pay him anything he earns in excess of his salary, but explain that he won’t make less than the salary amount for the first six months.
6. Phase in the downside once the six months has passed. Keep assigning work to the associate, and be very aware of how he is doing relative to the original salary. Manage it so they keep moving up. If you were overstaffed, this may mean that you have to shrink your team to keep everyone busy.
7. As the leader/associate gets comfortable with the concept, extend it to other associates.
8. Don’t force the system on anyone who is overly resistant. Give them time to watch it in action. Let them figure out that they’d be earning more under the new plan. Be flexible during the switch.
9. Stay in close touch with everyone involved during the transition. Make sure they understand the system. Make sure they understand their paychecks. Don’t assume they understand the system: be sure they understand. Continuously address their concerns, fears, and worries. Pay attention.

Follow those steps, and you’ll end up with a variable compensation system. It’ll take time. Expect 18 months before it’s fully implemented. Don’t be surprised if the change results in some turnover. Change is always difficult, but adapting to change makes you and your team stronger.