Law Practice Management Asked and Answered Blog

Category: Origination

Feb 05, 2019

Law Firm Client Level vs Matter Level Client Origination Credit

Question: 

I am the owner of an eight-attorney insurance defense law firm in the greater Chicago area. All of the other attorneys in the firm are associates. They are currently paid a salary plus a bonus for billable hours that exceed certain thresholds. I am in the process of establishing a non-equity partner tier and for this tier I want to setup a different compensation system with the focus on collected revenues rather than billable hours. I will continue to pay non-equity partners a salary with a bonus for collected working attorney and responsible attorney fees for other timekeepers work over target threshold’s. I have given some thought to client origination of business but since we have a small universe of insurance company clients not sure how this would play out. I would appreciate your thoughts.

Response: 

I agree that at the non-equity partner level you should consider shifting the focus to collected revenues rather than billable hours. At the non-equity partner level it should be your goal for them to become managers of work (responsible attorneys) rather than just workers (working attorneys). Therefore, I believe that your compensation system should compensate the non-equity partners for their individual work (working attorney collections) as well encourage them to delegate and push work out to associates and paralegals (responsible attorney collections).

Client origination is the other variable that some firms include in their compensation programs. The general idea is that attorneys should be Finders, Minders, and Grinders. In an insurance defense firm it will be difficult for associates and non-equity partners to originate new clients at the client level.

The firm’s existing clients were probably all originated by you and there are probably a limited number of new client opportunities. While I believe your focus for non-equity partners should be on working attorney and responsible attorney collections, I think that it is important that you at least track business or client origination so that you measure your non-equity partners business development efforts and results. A better origination measure to track in your situation might be new matter origination rather than client origination. I suggest that you track, and not directly compensate, origination at the non-equity partner level. Track and reward via a salary increase or discretionary bonus instead.

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

 

 

 

Jul 28, 2015

Law Firm Compensation – Client Origination Guidelines

Question: 

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 and 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.

Response: 

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

 

 

 

Jun 02, 2015

Law Firm Partner Compensation and Client Origination Credit

Question:

Our firm is an 8 attorney general practice law firm located in Kansas City, Missouri. Five of the attorneys are equity partners and the other three are associates. The two founding partners are the only ones in the firm that bring in clients – the other partners are just workers. Currently the partners are paid based upon their collections for cases/matters to which they are assigned. They are also credited for work that others do on their assigned matters as well. We are concerned that in a general practice firm such as ours, everyone must be bringing in clients and we are considering changing our compensation system to factor in credit for client origination – bringing in clients. I would appreciate your thoughts.

Response:

All law firms need a mix of finders, minders, and grinders. Finders (client originators) are needed to provide sufficient work to keep the workers busy. Minders (responsible matter attorneys) are needed to manage the portfolio of client work. Grinders (working attorneys) are needed to service and produce client services.  While there are exceptions, in most firms partners must hit on all three of these cylinders. In other words, most of the partners must do well at finding, minding, and grinding. Partners may perform some of these roles better than others, however overall they should be competently performing each of the roles. Very few firms can afford the luxury of having several senior partners only bringing in business without being required to maintain personal production levels as well. Partner compensation research concludes that the most a law firm can afford to pay a rainmaker – over and above his or her own billable hours (fee collections) is the marginal profit derived from the associates the rainmaker can keep busy, regardless of how many partners he or she occupies. The most valuable partners are those who offer a balance of skills: worker, delegator, supervisor, and rainmaker.

Since origination of new clients is the lifeblood of any firm it is a key factor that should be recognized in any compensation system. The exact weight that it is given will depend upon the firm and how dependent it is upon constant client replacement, only a few institutional clients, turnover of clients, leverage ratio, etc. A firm that has a well diversified base of institutional long time clients will typically weigh client origination much lower than a firm that has to constantly replace individual clients.

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

 

Jul 08, 2014

Law Firm Partnership – Client Origination Expectations for New Associate Attorney

Question:

I am the sole owner of a four attorney general practice firm in Rockford, Illinois. I am 58 and realize that in the next few years I will need to begin implementing a succession and exit strategy by probably bringing in a partner. Two of the associates have no interest in partnership. However, the newest associate hired, who had his own practice for several years, does have such an interest even though he was recently hired. He is off to a good start as far as his production. However, I believe that he must be able to originate and bring in client business as well. So far his energy and focus has been totally on performing legal work. I want to get him started on the right track in order that I can make him a partner in a few years. Please provide any thoughts that you may have.

Response:

I agree that in a practice such as yours that client origination is important. I suggest that you start by laying out and discussing with him your expectations. In other words what will it take for him to become a partner – production, quality of legal work, billings, client satisfaction, and origination of new client business? Be specific and set specific goals for him and your expectations for him but also your timeline for partnership consideration. I would suggest five years. Personally, I believe his client origination goal at the five year point should be between $300,000 and $500,000 or higher. Establish baby step goals for origination – say $50,000 after year one, $100,000 after year two, $200,000 after year three, $300,000 after year four, $400,000 after year five. This will require that you track origination fee dollars in your billing/accounting system. Specific guidelines and rules regarding the attribution of origination credit should be developed. In other words an attorney should not receive origination because a client calls as a result of the firm's brand, advertising, etc. and he is passed the call because he is the only attorney in the office to take the call.

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

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