How law firms' employee compensation models can drive organic growth

How law firms' employee compensation models can drive organic growth

A new report from LexisNexis considers various methods of organic growth employed by some of the UK’s leading law firms. Perhaps unsurprisingly, one of the key business growth strategies relates to the satisfaction of lawyers with their overall compensation package.

Until the introduction of alternative business structures (ABSs), most law firms operated as traditional partnerships where pay was determined according to seniority - known as “lockstep” compensation. But the legal industry has experienced substantial disruption to traditional business models over the past decade and many firms have had to adjust their methods of remuneration to ensure they continue to attract and retain the top talent.

Read our new report on how law firms can drive Organic Growth

Why law firms are favouring performance over seniority

Although many large firms continue to rely on the traditional “lockstep” model of pay, smaller practices are increasingly embracing a commission based salary structure.

Our analysis found that 60% of small firms have moved away from a fixed lockstep method of remuneration to pay based on the value a lawyer has added to the firm or the overall profitability of the practice. 44% of large firms have followed suit in this regard, partly to counter fierce competition from American firms with deep pockets.

New hires are increasingly being offered higher but variable salaries which are linked to a proportion of annual profits, as an alternative to bonus payments, and some firms such as DWF which have become PLCs are offering shares to freshly hired partners. 

Other practices are streamlining paths to partnership. Taylor Wessing UK Managing Partner, Shane Gleghorn, said: “We’ve tried to accelerate the timescales for people to reach the partnership. Our emphasis is on metrics which result in cooperation between the partners, collaboration, and the growth of the pie.”

Why law firms should reward non-legal staff

Qualified solicitors have traditionally received far more generous remuneration packages compared to their non-legal colleagues, irrespective of the real value added to the firm. Our analysis shows that current average lawyer salary stands at:

  • Associate solicitor - £65,000

  • Salaried partner - £75,000

  • Equity partner - £130,000

Although non-lawyers have generally had to accept significantly lower pay, this has been changing as many firms have come to realise the true value of other business professionals in driving profits. For example, due to the rise of legal technology, support staff with relevant technical skills command a premium.

Commenting on this phenomenon, Peter Jackson, Chief Executive, Hill Dickinson said: “I think it has engendered in the lawyers a recognition of how those who aren’t lawyers can actually help the growth agenda and can be just as important to clients.”

Meanwhile, Nick Perry, Managing Partner, Bird & Bird noted: “Clients are coming to us with problems which can not always be solved by lawyers and so it’s becoming more and more common for teams of lawyers to collaborate with other professional staff to co-create client solutions.”

Compensation through flexible working

Most firms had to quickly adapt to work from home (WFH) methods during the pandemic, and many have decided to retain a high degree of flexible working in perpetuity. For example, Freshfields, Clifford Chance and Linklaters have all decided to allow their lawyers to work remotely for up to 50% of the time.

A generous flexible working policy will be considered valuable by many employees, and will often mean that other elements of the overall benefits package - notably lawyer salary - can be kept down. Furthermore, it allows firms to reduce office space and minimise overheads on rent.

To find out more about how your firm can encourage business growth through new compensation models, see our full report.

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About the author:
Dylan is the Content Lead at LexisNexis UK. Prior to writing about law, he covered topics including business, technology, retail, talent management and advertising.