Photo by Eliane29 from Getty Images
Law firm compensation – finding the right fit
In a recent LinkedIn post, self-described law firm matchmaker Jennifer Gillman – Law Firm Matchmaker discusses the infinite variability in how lawyers are compensated and highlights how important it is for them to find the partner compensation model that works best for them. This ultimately depends on the individual personality, values and preferences of the respective lawyer.
As Gillman says in her post, finding the right fit comes down to two things: “understanding what you want [and] understanding each aspect of compensation in detail before negotiating a package that best aligns with your needs, practice, and personality.”
She goes on to outline different compensation models, including common approaches such as:
- The lockstep system, where each partner of the same class year gets paid the same and receives incremental raises that are not directly related to the amount of business they bring in;
- The formula system, with an exact mathematical formula to calculate the level of compensation based on the lawyer’s actions;
- The subjective approach, where the firm has a plethora of things it says will be considered for compensation without always making clear how these are weighted;
- “Eat what you kill”, where earnings are tied directly to the amount of business brought into the firm;
- Open systems, where the firm transparently communicates all income and every factor used to determine compensation, though the firms’ lawyers may still not know what their end compensation will be;
- Closed or “black box” systems where firms keep their cards hidden, and lawyers may have no idea where they stand throughout the year;
- Reward-for-billable-hours systems, which are particularly common in firms with large institutional clients;
- And last but not least, what Gillman describes as the “argue-at-the-holiday-party system”, where very little is defined until the partners get together at the end of the year to hash out compensation.
She then discusses the different factors that impact compensation (e.g. whether the lawyer is an equity partner or an employee; whether they are a billing attorney or a working attorney; and other factors, including firm citizenship credit, cross-selling, etc.) before addressing how to choose the right system. To do so, lawyers must ask themselves a series of questions: do they prefer being a lone wolf or hunting in a pack; do they work in a practice area with high volume and lower rates; does their firm require them to take on leadership roles? And so on.
Ultimately, the firm’s compensation model should reward lawyers according to their contributions and skills. If that’s not the case, then lawyers should move on to a firm where they feel properly valued. As Gillman writes: “We want successful lawyers to be happy, and compensation structure can hugely impact that happiness.”
So, in the words of Janet Jackson (or Eddie Murphy, depending on your source material), it might be high time for some of our readers to look their current firm in the eye and ask them: “what have you done for me lately?”
Dickson Minto’s courtship dance
The New York firm Fried Frank is making overtures to the City and Edinburgh-based private equity boutique Dickson Minto. A delegation from Fried Frank met with Dickson Minto’s de facto managing partner Jordan Simspon in October for what The Lawyer describes as more than “just a polite meeting to chew the fat over a cup of coffee”: it seems that Dickson Minto is open to being wooed and is contemplating entering the marriage market.
Founded in 1985 by Alastair Dickson and Bruce Minto – whose personalities have completely defined the boutique’s culture of proud independence – the firm was born of the close-knit Scottish investment community and was an early player in the private equity world of the 1990s and 2000s. Founding partners Dickson and Minto have recently taken more of a back-seat role, which seems evident in the mere fact that Fried Frank has come a-courting – one attorney familiar with the firm is quoted by The Lawyer as saying that “In Alistair and Bruce’s day, their response to the idea of a merger would be ‘over my dead body”.
Sounds like something that they would have said. I met Bruce when I was the Scottish editor of the Legal 500 and in under 45 minutes, he executed a masterclass of law firm marketing. After greeting me with a hearty, booming laugh that scared the living shit out of me, he started by telling me all the things the firm was not (property, litigation etc) and then went on to tell me that if I or anyone suggested anything other than that they were the top tier firm for corporate in Scotland, that they were damned fools. But he backed it all up with data. He was a breath of fresh air, emininetly entitled to his approach based on his track record.
Anyway, I digress….
Although Dickson Minto seems to have a string of suitors, Fried Frank can expect to have the first dance with this belle of the City’s private-equity ball. That’s not least because the two firms have family ties: Fried Frank’s former London boss Graham White was a partner at the Anglo-Scottish boutique for a decade from 1988 onwards, while the US firm’s global head of PE Chris Ewan – a University of Edinburgh alumnus – cut his teeth as a young lawyer at Dickson Minto. And a merger would immediately give some real clout to Fried Frank’s somewhat underpowered funds practice.
For its part, Dickson Minto would also stand to benefit greatly from a transatlantic merger, as many of its clients need US capabilities and the firm finds itself hamstrung by its inability to act in high-yield bonds transactions or restructuring deals. As a result, the boutique has been steadily descending through the UK200 rankings (albeit in terms of scale rather than profitability).
Yet many big clients remain loyal to Dickson Minto, perhaps not least for its laser-like focus on high profits, its fiercely independent mindset and its unwavering consistency. These clients include Astorg, Averna, Charterhouse, Compass Partners, Onex Partners, Stirling Square, Three Hills Capital Partners and Vitruvian – names that help explain the appeal of any future merger with the Anglo-Scottish boutique.
If a merger does take place, all the indications are that the smaller firm’s City operations would be absorbed into the larger US firm while its Edinburgh practice would be hived off, retaining the Dickson Minto name and acting as an independent firm less focused on private equity.
Such a ‘conscious uncoupling’ may seem radical at first glance but is, in fact, highly pragmatic, given that the market throws up so many obstacles to remaining independent. In fact, the only truly radical thing is that Dickson Minto’s senior lawyers (and indeed its founding partners) are entertaining thoughts of a merger in the first place – surely a sign that they see the writing on the wall if they continue to try and go it alone in these turbulent times.
Riders of the storm – are law firms sailing into choppy waters?
Last year was a bumper earnings year for many in the legal sector, The Lawyer reports. However, despite many firms reporting further hefty revenue gains in H1 of the current financial year, the general economic outlook is a lot more bleak, thanks in no small part to a rate of inflation to match those growth figures: what shall it profit a law firm to gain double-digit growth and lose all its margins? In light of the strong economic headwinds, merely managing to maintain last year’s profit levels may be this year’s measure of success.
And yet: healthy profits are being made, and the market still looks robust. So are we, in fact, currently witnessing the calm before the storm? Or are we already in its eye? Outwardly, at least, the legal sector seems to be doing just fine.
Disputes work is certainly keeping firms as busy as ever, although the nature of the claims is changing. Now that the tap of free Covid money from the government has been turned off, dead companies are no longer being propped up, so there has been a huge increase in winding-up petitions flooding the courts. And while banks were actively avoiding litigation during the pandemic, many of these financial institutions are now limbering up for an increase in claims.
Restructuring teams across the City are also being kept busy at the moment, and even smaller regional firms such as Lincolnshire-based Chattertons are having to turn away work at times, even though the corporate team there has grown from one to seven partners within a couple of years.
There has, however, been a huge drop in other transactional work, with top and mid-tier firms describing capital markets as “dead”, with M&A, private equity, leverage finance and deal volumes also having seen a steep decline. One partner at an international law firm states that M&A is down by around 20 per cent, saying that the work that is around is “harder” and “taking longer to get over the line”. One UK boss of a US law firm says that “the dashboard lights are not glowing red yet, but the orange ones are coming on.”
So what can law firms do to stop the roof from blowing off if the winds of recession do come raging about their houses? One immediate answer is to mitigate their risk by diversifying their range of services, so they are not overly reliant on any one practice area. Recession-proof practices such as private-client work and wealth management will have less to fear in this regard.
Another key to weathering what the BoE has warned might be “longest-ever recession” is to raise rates in line with inflation, though some firms will understandably be reluctant to do so. However, their hand may be forced by the market and they will have to increase their prices to keep margins healthy.
Lastly, firms may also want to ‘streamline’ their payroll. Although no firm that The Lawyer spoke to admitted to a hiring freeze, several did state that they were taking a more strategic approach in their hires, with associates proving more popular than expensive partners.
None of us here at TBD have a crystal ball we can gaze into, but all signs certainly seem to be pointing towards a prolonged economic cold snap. It is, therefore, more important than ever for firms to get their house in order and think about how to come out stronger on the other side.
When the FT says bo Electra
Legal tech innovator Electra Japonas – CEO and founder of TLB, a firm marketing legal design and management services – has been recognised in the Financial Times for her ground-breaking work on OneNDA, the world’s first crowd-sourced and open-source Non Disclosure Agreement.
Co-founded by Japonas and Roisin Noonan, OneNDA is designed to improve legal team efficiency, boost transparency and reduce costs. Japonas spearheaded its development, working with a steering committee of 60 lawyers from several firms and engaging with feedback from up 1,200 people in the wider legal community – a true feat of collaboration.
Since its launch in August last year, the OneNDA form has been downloaded over 10,000 times and formally adopted by 650 companies. TLB, Japonas’ company, received the FT’s collaboration award last year and was praised by the publication for providing “a blueprint for how the legal industry can collaborate”.
We want to join in and congratulate Japonas and TLB for this groundbreaking and truly useful tool – her recognition in the FT this week as one of five champions of legal transformation is richly deserved.
Post of the week – In praise of toilet attendants
In his recent LinkedIn post, lawyer and columnist Terence Channer asks readers to show appreciation for what he terms the “archetypal black toilet attendant, honestly making ends meet, often just to get through university”.
Channer himself had to take menial jobs such as cocktail waiting and flipping burgers to put himself through law school. As Channer writes in his post: “Many black toilet attendants have gone on to become lawyers, doctors and other professionals, and even if they haven’t so what? Every one of them deserves our respect.”
It is, of course, sad that anyone could think or feel otherwise, but we know that the world is not always as we would like it to be – and no one should ever have to earn their dignity. Or be seen solely through the prism of their job.
The TBD Christmas movie watchalong
When the pandemic hit, Helen Burness and I launched the #80swatchalong Sunday night movie to keep everyone’s spirits up during lockdown. Although it seems we are now free from the shadow of Covid restrictions, the news has certainly been far from cheery of late – and so we thought we would do something similar in the runup to Christmas and raise people’s spirits during the festive season.
So, dear readers, please head on over to the comments of my recent LinkedIn post to add your favourite Christmas-themed movies to the watch list. And then stock up on popcorn (and maybe invest in a onesie?) ahead of next month’s interactive fun.
Dates for your diary
- 13 November 22 – Remembrance Sunday – This year marks the first official ceremony at which our new head of state, King Charles III, will lay the ceremonial wreath at the Cenotaph. How odd and sad it will be to not see her late Majesty the Queen there.
- 16 November 22 – The ONS is to release the Consumer Price Inflation figures for October
- 16 November 22 – The Law Society seminar: Get the balance right! Cloud accessibility v data security in law firms – This highly informative webinar, with industry experts from Google, will explore how to balance the benefits of data-on-the-move with the potential hazards of cybercrime, money laundering and SRA penalties. A must for practice managers, fee earners, data protection officers, IT Managers, COLPs and principals/partners/directors at all levels who access, utilise or monitor data and want to run their practices smarter, securely, and compliantly.
- 17 November 22 – Chancellor Jeremy Hunt is to announce his autumn budget, which was delayed from 31 October following the resignation of Liz Truss and the appointment of her successor, Rishi Sunak, as PM. Will this be Austerity Mark 2? To quote Samuel L Jackon in Jurassic Park, hold on to your butts…