Sample Partnership Agreement Provisions Respecting Compensation – Appendix A (Part 7 of 7)


Debra L. Bruce, JD, PCC.

This is the Appendix A mentioned in the previous seven articles discussing structures that law firms tend to adopt for partner compensation. In Part 1 we discussed the Monarch structure, in Part 2 the Parity structure, in  Part 3 the Executive Committee Monarchy, in Part 4 the regular Lock Step, in Part 5 the Modified Lock Step, and in part Part 6 the Eat What You Kill structure.  Appendix A provides an example of some partnership agreement language in a Modified Lock Step compensation system.

APPENDIX A
to Partnership Compensation Plans

Selected Provisions Of
Agreement Of Limited Liability Partnership
Of
A & B, L.L.P.
[Not Intended As A Complete Partnership Agreement]

This AGREEMENT OF LIMITED LIABILITY PARTNERSHIP of A & B, L.L.P. is entered into to be effective as of the __ day of ___, 200_,

by and among A (“A”) and B (“B”) (collectively, the “Partners”) pursuant to the provisions of the [State] [Partnership Law], and according to the terms and conditions set forth herein.

NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS: Read more «Sample Partnership Agreement Provisions Respecting Compensation – Appendix A (Part 7 of 7)»

Partner Compensation Plans – The Eat What You Kill, EWYK (Part 6 of 7)


Debra L. Bruce, JD, PCC.

This is the 6th article in a series of 7 discussing structures that law firms tend to adopt for partner compensation. In Part 1 we discussed the Monarch structure, in Part 2 the Parity structure, in  Part 3 the Executive Committee Monarchy, in Part 4 the regular Lock Step, and in Part 5 the Modified Lock Step.

Eat What You Kill (EWYK)

Description
Each lawyer’s compensation is based on the revenues she generates. Usually there is some kind of formula that attempts to account for overhead, and then distributes all remaining profits to the lawyers based on their collections. In some systems a flat dollar amount is determined for overhead per lawyer, by dividing up the sum of fixed and predictable expenses, such as rent and shared staff salaries. Everything the lawyer bills and collects in excess of the fixed overhead figure gets paid to that lawyer after subtracting certain firm expenses directly associated with that lawyer such as business development expenses, retirement plan contributions, and salaries of staff or associates who work mostly for that attorney. In that model the firm is more akin to an office sharing arrangement than a partnership.

A variation of the EWYK model does provide for sharing of risk. The firm’s profits are determined, and distributed in accordance with a formula that averages the collected revenues attributable to a partner over multiple years (usually two to four). The averaging slightly shaves off peaks in income, to provide support from partners on the upside of the seesaw to partners on the downside, during cyclical downturns or temporary crises. The income levels remain largely tied to billable hours produced, however.

When It Works Well
This system may be the only system that Read more «Partner Compensation Plans – The Eat What You Kill, EWYK (Part 6 of 7)»

Partner Compensation Plans – The Modified Lock Step (Part 5 of 7)


Debra L. Bruce, JD, PCC.

This is the 5th article in a series of 7 discussing structures that law firms tend to adopt for partner compensation. In Part 1 we discussed the Monarch structure, in Part 2 the Parity structure, in  Part 3 the Executive Committee Monarchy, and in Part 4 the regular Lock Step.

Modified Lock Step

Description
Many firms have modified the lock step model to allow a committee to subjectively reward or punish behavior. The modification helps the firm to encourage essential behaviors such as business development, high productivity, recruiting, training and mentoring associates, management, and client relationship maintenance. It also provides the flexibility to bring underperforming partners into line, without having to completely expel a partner.

Some of the modifications may include the ability to promote a partner to a higher level earlier than the other classmate partners, or demote a partner to a lower level. There may also be a “slush fund” for allocating bonuses to reward desired behavior. Appendix A to this article (which will appear in Part 7 of the seven-part series) contains an example of provisions that might be included in a modified lock step compensation plan. The author extends her gratitude to Bill McDonald, a partner at Thompson & Knight LLP, whose practice includes advice on law firm formation, for the provisions included in Appendix A.

In Appendix A, the agreement provides for seven lock step levels, but permits the management committee to assign each partner to the appropriate level annually. It also provides that a certain percentage of profit distributions, say 75%, will be made in accordance with the points assigned in each level. The remaining 25% of profits are allocated to the “slush fund” that is distributed by the management committee in its discretion. Thus there are two mechanisms for modifying the lock step profits and loss allocation: level movement and discretionary distributions.

When It Works Well Read more «Partner Compensation Plans – The Modified Lock Step (Part 5 of 7)»

Partner Compensation Plans – Lock Step (Part 4 of 7)


Debra L. Bruce, JD, PCC.

This is the 4th article in a series of 7 discussing structures that law firms tend to adopt for partner compensation.  In Part 1 we discussed the Monarch structure, in Part 2 the Parity structure, and in  Part 3 the Executive Committee Monarchy.

Lock Step

Description
This model is used mainly in large, stable, well-established firms that have a lot of institutional clients. It rewards seniority. Usually, all of the lawyers who become partners in the same year are a class, and make the same compensation. The class as a whole receives an increase in points, which are the basis of allocating profit distributions, when they are elevated to the next level. Typically, the spread between the salary of the highest paid partners and the lowest paid partners is not that large – 3 or 4 to 1 is not uncommon.

When It Works Well Read more «Partner Compensation Plans – Lock Step (Part 4 of 7)»

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