An increasingly competitive legal environment is resulting in changes in the way that law firms pay their partners.

In my experience there are three main types of partner compensation systems:

1)      Equality/lockstep - Compensation is determined mainly by seniority. I’ve seen this system used by many small firms and some very large US and UK firms.  The advantage is that it encourages partners to work as a team, while the disadvantage is that partners may not feel it’s fair if other partners don’t pull their weight yet are paid the same as high performers.  

The idea for this post was inspired by Ron Baker of Verasage Institute.  After checking out some of his writings in recent months, I stumbled across one of his key concepts in the search for value.  The definition of value is contained in this formula:

Value = Customer Profit – Price

I modified Ron’s formula slightly to illustrate the point of this post. 

Many firms spend a lot of time trying to collect bad debts instead of preventing them in the first place.  You can change that with a good file opening system, with your Managing Partner approving all new clients and files over a certain size.

Why do this?  Because many law firms' compensation systems reward partners for volume of billings or hours generated, not quality of billings or hours.