with John Jameson, the Jameson Group
When reaching out to lateral hires, one of the most important issues to determine is what you are going to offer them and how you’re going to pay them. Compensation needs to be part of the process right up front. It should not be something that a firm starts to think about once it has identified a particular candidate.
You have to be prepared to flexible on compensation. Every firm has different profit levels, and people get paid differently based on seniority, client generation, portability of book, etc. Although there are times when someone might make a move to a firm and take a lesser base salary, or draw, no one is looking to make less money. So when you’re aiming to hire a partner coming from a firm that is more profitable, you need to be flexible in your compensation system to attract him or her.
Now, that’s not to say you have to pay an outrageous base salary or draw that is completely out of sorts with your firm, but it does mean that you have to find a way to give the new candidate enough comfort in the monthly salary and potential based on production that he or she is going to be happy with the long-term number. Specifically, law firms often will look to create performance bonuses. These can be based on hours, but much more often they’re based on a partner’s client generation and collections from those clients.
Tip: When determining compensation, it should be based on a full twelve months of collections. On day one when a new hire starts with a new firm, he or she is bringing in zero. Assume a 90-day billing cycle: On day one he or she starts. On day thirty, he or she sends the bill out. And hopefully by day ninety, that bill is collected. So to really give a fair evaluation of what that partner produced, you need to give him or her a fifteen-month cycle, which will include twelve months of collections. Then you can come up with a number that makes sense.
Inside vs. Outside Offers
The most important point to talk about with regard to compensation is what we define as an inside offer versus an outside offer. An inside offer is an offer a firm makes to a new lateral that fits into the firm’s compensation system and really does not deal with where the candidate is coming from and what his or her current compensation is. It fits nicely within the firm’s compensation system and is not really taking into account what’s necessary to get that lateral partner to accept your offer.
An outside offer is specifically designed to get that candidate to say yes and join your firm. It may require you to deviate from your normal compensation system. You can certainly attract a candidate with performance and other types of bonuses to shift the risk between you and the candidate, but an outside offer is one where you’ve determined a person or group is what you want, they fit the business plan, and you are going to do what’s necessary to attract them (unless it’s crazy).
So firms need to understand where they stand. Are you prepared to make an inside offer where you like a person but you’re not really going to stretch for them? Or are you going to make an outside offer where you want them, they’re making more money than they would with your firm, but you’re going to make sure that you make this offer as strong as possible. If firms address this question while they’re going through the process of determining how to make an offer, they will find a much greater success rate.
For more tips, check out our marketing seminar “Growth Through Lateral Partners.”