Best Practice tip of the week: The two-partner compensation system

Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. Our firm has been getting by for 18 months since start-up.  We are starting to get some repeat business and I think we are on our way. However, my partner looked at the numbers for 2008 and realized that she made about a third more money last year, both in terms of actual dollars for her work and in terms of origination. Our actual hours were roughly even, but there might have been some slighter disparity. Now we are having that first talk about changing from the straight 50-50 split to the perhaps the other extreme of "each woman for herself" (after jointly paying basic expenses).  What are your suggestions? A. I have reviewed your comments. In small firms the best systems are those that are simple, easy to understand and easy to implement. Often two partners start out on a 50%-50% arrangement and the arrangement eventually has to be changed when and if their situations change that has a major impact upon their overall contributions to the firm. (Notice I used the word contributions - not necessarily - fees collected). However, until level of contributions change - I have often seen 50% arrangements work well in small firms that are looking to build a Firm - rather than simply their own practice and earn as much money as they can for themselves. When level of contributions change - in a healthy partner culture - the partners will be able to talk to each other and sit down and discuss an alternative arrangement that makes sense for them. I encourage firms to look beyond single-year timeframes - typically 3-5 year cycles. Sometimes in healthy firm cultures one partner may need to carry the other partner for awhile. For example, an attorney with a PI plaintiff practice may have wide swings and may need to be carried in lean times - but when the big fee comes in both share in the benefits. Click here to read more John W. Olmstead, MBA, Ph.D, CMC,  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 General ListServ, which the John and other committee members reviews, or view archived copies of The Bottom Line Newsletters. John may be contacted via e-mail at jolmstead@olmsteadassoc.com.