Best Practice: Law Firm Compensation - Client Origination Guidelines

Asked and Answered

By John W. Olmstead, MBA, Ph.D, CMC

Q. I am the managing partner of a 25 attorney firm in Charleston, South Carolina. Our practice is limited to insurance defense. We have eight equity partners, four income partners, and five associates. Our firm is in second generation and virtually all of our clients were originated by first generation partners that are no longer here - they have since retired. Our compensation system focuses totally on working attorney dollars. I believe that we must begin to stress the importance of origination of new clients and factor that into the equation. I would appreciate your thoughts.

A. Origination of new client business is important in any firm. Many insurance defense firm are too dependent on four or five insurance companies and need to diversity their client portfolio. Origination should be at least a factor in compensation systems - whether treated objectively or subjectively. There are pitfalls and you will need to establish specific rules, guidelines, and a policing committee. 

Here is an example of origination guidelines that some law firms have implemented:

1. Firm Employee or Employee Referral. Whenever the firm is employed by one of its non-lawyer employees or by a client referred by such employee, the client should be considered a firm client and no origination attribution aware should be made.

2. Employee of Existing Client. When an employee of an existing client (other than a principal) becomes a client of the firm, the presumption will be made that the employee is a client of the attorney to whom the employer is attributed. There may be extenuating circumstances calling for a different result, and these circumstances should be brought to the attention of the Attribution/Compensation Committee.

3. Martindale and Similar Lawyer Lists. Referrals generated by Martindale and other such lawyer lists should always be considered clients of the firm.

4. Clients Resulting from Prior Clients. In the case of a client attracted to the firm by reason of a lawyer's prior representation of another client, the new client shall be presumed to be the client of the lawyer to whom the existing client is attributed unless the new client was demonstrably attracted by the lawyer representing the existing client.

5. Direct Referral by Existing Client. In the case of a referral by an existing client of Lawyer A to Lawyer C (by reason of Lawyer C's particular expertise), the client shall nevertheless, in most instances, be deemed to be the attributed client of Lawyer A.

6. In-Town Referrals. Referrals by lawyers in (name of city) resulting from conflicts of interests should be considered firm clients. However, some referrals to our firm are made by other lawyers who have recognized the particular expertise of one of the lawyers in the firm. All in-town referrals should be first referred to the Attribution/Compensation Committee prior to any attribution being made.

7. Out-of-Town Referrals. In Most instances, out-of-town referrals (other than from lawyer lists) are the result of friendships and professional associations between lawyers. The attribution should properly be awarded to the lawyer to whom the referral is made.

8. Paralegals. All dollar amounts resulting from the work performed by paralegals shall be attributed entirely to the attorney to whom the client is attributed.

9. Contingent Fee Cases. Upon receipt of the firm's share of amounts payable under a contingent fee contract, the originating attorney should be attributed ___% of the fee and the remaining ___% should be spread among the lawyers in proportion to their hours of service on the case, taking into consideration their respective hourly rates.

10.  Joint Referrals. The affected lawyers should meet in an attempt to resolve their respective sharing. If, however, the matter is not resolved, it should be referred to the Attribution/Compensation Committee for a binding decision.

11. Retiring Partners. The clients of retiring partners are presumed to be firm clients.

12. Attribution/Compensation Committee. All origination attributions should be reviewed by the Attribution/Compensation Committee in the same fashion that it reviews new clients. Independent inquiry should be made of new clients where there may be some question as of the appropriateness of attribution.

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John W. Olmstead, MBA, Ph.D, CMC, (www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.