Origination Credit and Original Sin

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Published on 4/5/10

Partner compensation is governed by firms in a variety of metrics that could, for example, emphasize origination (percent of new business that the partner brings in), total hours worked, or hours assigned to other lawyers in the firm (a traditional hallmark of rainmakers).

Metrics that structure compensation to benefit institutional goals rather than maximize individual income ultimately will do more to increase the partner’s compensation as well as the firm’s revenue and profitability. The latter objective is — or should be — the ultimate goal of any firm.

Unfortunately, many lawyers seem to lack an understanding of this institutional concept and focus solely on their own personal book of business. The broader implications of how individual fees, collections and compensation interact within the firm tend to be depreciated.

Yet nothing is more important to a firm’s future than removing from an individual context the issue of who actually gets paid for serving the client and placing it at the heart of the firm’s financial life.

When rainmakers focus only on their own business origination and client service, the idea is lost that clients belong to the firm, not to a partner.

Firms that service major clients with teams (not just a single rainmaker) can cross-sell between teams according to a strategic plan and can give clients a complete and virtually seamless service package. Client billing is simplified, and bonuses can go to those teams that get results.

Those types of steps institutionalize both compensation and profitability.

Lawyers want their legal services to be seen as unique, yet clients increasingly want to see the dynamic shift toward the commodity model, expecting large volumes of work to be billed at low fixed prices. The best way to resist such pressure is through a service approach that emphasizes the firm’s entire range of capabilities and value-added resources.

A single lawyer may be seen as a commodity, but it is much harder to view lawyers that way collectively. Serving clients through teams rather than just a single rainmaker allows the firm to serve a full range of client concerns.

A billing attorney coordinates the service provision, rather than getting origination credit, giving the client "one-stop shopping" from a group of lawyers who are chosen to address specific needs, in terms of practice specialties as well as billing rates. That allows for blended high and low rates on client work, which maximizes revenue and profitability.

Compensation is then based on what is generated for the organization — not for any one individual — because the organization’s revenue is maximized, and so, too, are profits. By eliminating squabbles over who gets origination credit for a client, both the firm and its clients are better served.

The best law firm compensation approach gets away from a star system that rewards only individuals who are out for themselves. A system that supports and rewards a team of service providers provides value to the client and creates a more profitable firm, from which all members benefit.

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