22 05, 2012

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

2019-03-20T21:00:29+00:00By |3 Comments

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: […] «Sample Partnership Agreement Provisions Respecting Compensation – Appendix A (Part 7 of 7)»

21 05, 2012

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

2019-03-11T22:21:00+00:00By |2 Comments

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 […]

18 05, 2012

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

2019-06-25T16:27:46+00:00By |2 Comments

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 […]

17 05, 2012

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

2019-03-11T22:32:20+00:00By |3 Comments

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 […] «Partner Compensation Plans – Lock Step (Part 4 of 7)»

16 05, 2012

Partner Compensation Structures – Executive Committee Monarchy (Part 3 of 7)

2019-03-19T21:28:11+00:00By |3 Comments

This is the 3rd article in a series of 7 discussing the different kinds of partnership compensation structures that law firms tend to adopt. In Part 1 we discussed the Monarch structure, and in Part 2 the Parity structure.

Executive Committee Monarchy

Description
Both of the prior structures are usually only found in small firms of ten partners or fewer. In a larger firm, the Monarch structure may be expanded to a ruling executive committee. In this situation a rather stable and predictable executive committee functions like a single monarch. Usually they are the founding partners or otherwise the most experienced lawyers in the firm.

When It Works Well 
This structure works when the […] «Partner Compensation Structures – Executive Committee Monarchy (Part 3 of 7)»

15 05, 2012

Partner Compensation Structures – Parity (Part 2 of 7)

2019-03-19T21:26:59+00:00By |4 Comments

This is the 2nd article in a series of 7 discussing the different kinds of partnership compensation structures that law firms tend to adopt. In Part 1 we discussed the Monarch structure which involves one partner who rules over the others on compensation issues.

Parity

Description
All of the partners split the profits of the firm evenly. This format usually comes out of a situation where two or three lawyers of similar vintage are friends, and decide to form a partnership.

When It Works Well
When the lawyers have […] «Partner Compensation Structures – Parity (Part 2 of 7)»

10 05, 2012

Reducing Culture Clashes in a Small Firm Merger

2019-03-19T21:32:16+00:00By |Comments Off on Reducing Culture Clashes in a Small Firm Merger

“We’re thinking about combining our firm of three lawyers with another small law firm. Do you have any guidance for us on what to consider in making our decision?” Clients ask me questions like this more frequently these days.

In some cases, a booming law practice has rainmakers looking for experienced help. Some senior lawyers in solo and small firms consider mergers as they begin thinking about succession planning. Sometimes young lawyers with developing practices seek to cut per capita overhead by spreading fixed costs across more fee earners. For some small firms, the merger mania in BigLaw has stimulated them to consider their options.

When contemplating a merger, many risks and rewards must be considered and due diligence investigations should be conducted. Culture clashes undermine mergers more frequently than any other factor, however.

When there are only 5 lawyers in the whole office, common values become even more critical. There is nowhere to hide. Variances in strongly held beliefs and values tend to grow from cracks to chasms. They can threaten the productivity, health and work satisfaction of everyone in the office, as well as the success of the firm as a whole.

Fortunately, with fewer people involved in a small firm, it can be a little easier to identify and discuss issues that may develop into rifts in a law firm partnership. Here are a few subjects to discuss.

1. What is your attitude toward money and the firm’s fiscal policy? Do you advocate leveraging debt to help the firm advance quickly and to weather dry spells? Or do you prefer a more conservative pay-as-you-go approach, relying on partners for any bridge loans required during slower periods?

1 05, 2012

6 Warning Signs You May Not be Ready for a Virtual Paralegal Relationship

2019-03-19T21:42:30+00:00By |Comments Off on 6 Warning Signs You May Not be Ready for a Virtual Paralegal Relationship

A virtual paralegal relationship is not the solution for every solo or small firm attorney. After consulting with many prospective attorney-clients over the last 3 years, I’ve begun to recognize some repeating patterns. You may not be ready for a virtual paralegal relationship if several of these warning signs resonate: […] «6 Warning Signs You May Not be Ready for a Virtual Paralegal Relationship»

 

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