How Do You Compensate an Associate?

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Today, we’re continuing the conversation about law firm associates. I’m responding to the attorney who wrote about his 45 years of hiring associates and his recent realization that he hasn’t ever made any money from his efforts.

Before we hit the compensation issue, let me say this. The guy who started this has a point that shouldn’t be taken lightly. He has been doing this for 45 years and hasn’t made money with associates. He has wasted a bunch of time and energy. Maybe he shouldn’t have done it. Maybe he should have taken as much work as he could handle and no more. Maybe he would have been better off without associates.

Why couldn’t he pull it off? It doesn’t really matter, does it? He couldn’t do it, and many, many of us can’t do it either. Should we fix it or stop trying?

I say, if you’ve been working at this for a few years and can’t make money from associates, then stop hiring them. It’s not for you. Hiring lawyers isn’t important. What’s important is building a business that you enjoy and that compensates you fairly. Don’t feel compelled to hire anyone. It’s not an essential activity, and for many, many lawyers, it isn’t profitable or worthwhile. I know many lawyers who have worked by themselves forever, and they’re quite content. You don’t need an associate, and you don’t need the hassles that come with hiring someone. This is a purely optional form of torture.

So, if you’re going to do it anyway, how do you pay them?

I’ve tried it all: salaries, base plus bonus, and pure commission.

Dan Pink won’t agree with me, but for lawyers, pure commission works best. No salary, no base: just put it all on the line, and let them play the game.

Why? Because they love games with rules, and they desperately want to win. If you make the game simple, with immediate feedback, they’re going to win. If you set it up right, a win for them is a win for you.

Here’s how we do it:

Case comes in, and we collect the fee (we charge fixed fees, but this works for hourly as well).

Lawyer does the work.

File gets closed (we now know the total fee for the case).

Lawyer gets 20% of the fee.

Let’s say a client comes in and hires us to draft a separation agreement. Our fee is $10,000. Lawyer works on the case for three months and gets the agreement wrapped up. Boom, check is written for $2,000. On top of that, our lawyers get free health, dental, life, etc., plus a match on their 401(k) and all of their CLE expenses, bar dues, etc. paid.

Also, for the first few months of new attorneys’ employment, we pay them a minimal salary of about $5,000 per month, just to tide them over until cases start closing.

How’s it working? Great. It works for the business, and it works for the lawyers. Everyone wins. The lawyers are motivated to wrap things up, which makes the clients happy. It’s all good.

Some of the lawyers have been here long enough to have been on other systems in the past. How does this system compare? The lawyers earn more under the current system. Why? Because they’re more productive. As the game got simpler and more understandable, they exerted energy in the right places. I think some of the lawyers surprised themselves with how much more productive they became under the current system.

We evolved to this system over time. It took a while to get everyone on board. Some switched easily, and some required a push. Some staffing adjustments had to be made, and we’ve simplified the system over time.

Is this the right system for everyone? Hard for me to say. I can only tell you our experience, and I can report that it’s working for us. Give it some thought, and feel free to share your ideas and comments below.

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