Time To Give Origination Credits a Makeover

JOEL A. HERMAN, CPA

Competition among law firms, for clients as well as for attorneys, remains fierce. Origination credits have long been a way of incentivizing business development, as well as providing a form of compensation that works as a strong recruiting tool.

But the historical methods for distributing origination credits may no longer be compatible with the current cultures and priorities of many firms. Moreover, they can create issues that undermine their intent. If any of these problems plague your firm, you may want to retool your policy for origination credits.

The origination credit conundrum

Law firms have long given an origination credit to the partner who brings in a new client. That attorney often continues to receive credit for all work flowing from that client, even if he or she is not involved in it. Such an approach is replete with problems. Most obviously, it discourages collaboration.

It also can lead to frustrated younger attorneys. If some senior attorneys share their credits, but others do not, the associates assigned to the latter — even though perhaps performing the same as the former — earn less. Further, associates might plead to work with the former, leaving the clients of non-sharers underserved. The traditional approach does not nurture business development relationship building in associates early on and it may push them to seek competitors who award associates for such efforts.

In addition, it does not serve clients well. The originating partner may hoard work that a colleague is better qualified to do or can more efficiently perform. Partners might not assemble the strongest proposal team for a certain opportunity because they do not want to share the credit. This could also affect who is selected to work on a client team.

Finally, the traditional approach undermines succession planning. A partner approaching retirement may want to hold on to a credit as long as possible. This can result in inadequate time and exposure to successfully transition clients to younger attorneys.

A better approach

No firm should be locked into its current origination credit system. Firms can and should refine systems to be more equitable, prioritize teamwork and apply attorneys to their highest and best uses. When doing so, firms should keep several considerations in mind beyond just basing the credit amount on fees collected, which is the simplest and most straightforward formula.

Consider awarding credit to attorneys who bring value to a client’s ongoing relationship with the firm, especially in retaining the client through various challenges that may have been encountered or expanding the client services into additional, unrelated areas, regardless of whether they originally brought the client on board. That means making other partners, associates and possibly even paralegals eligible for credit sharing. For example, your firm might opt to award origination sharing to partners who develop new business with existing clients.

Firms should develop a specific policy for credit-sharing, with clear metrics for what will be measured and compensated. The policy should also address how a credit will be distributed when the originating attorney departs.

It is wise to allocate origination credits by matter, not by client. Such allocation also encourages other attorneys to expand the client relationship, growing revenues for the firm.

Firms should provide a mechanism to incentivize senior attorneys to transition relationships in a timely manner before retirement. For example, you might double the credit in the years before retirement so both the senior lawyer and the lawyer taking over get credit.

One size does not fit all

There is no universal origination credit policy that will work equally well for all law firms. Take the time to develop a policy that reflects your firm’s specific culture, goals and values.

For more information, contact your ORBA advisor or 312.670.7444. Visit ORBA.com to learn more about our Law Firm Group.

Buck the Odds: Successfully Hiring and Retaining Lateral Attorneys

THOMAS E. PIERCE, CPA

When law firms consider lateral hiring, most see it as a way to add niche expertise and management experience while bringing in new clients. However, according to a recent survey by Decipher Investigative Intelligence and ALM Intelligence, nearly half of the respondents indicated that the majority of their firm’s laterals underperform when it comes to bringing their stated books of business. Therefore, firms need to carefully consider the need for lateral hires, as the costs of bringing them on can be high.

Making the decision

As attorneys retire or leave your firm, look closely for any gaps. Do you really need to hire a new lawyer or can you redistribute the work?

If  you are hiring to expand your offerings, be sure to articulate and quantify your expectations. Do you want the attorney to bring a book of business and contribute to increasing firm revenues within a set time of his or her hire? If so, be sure that your expectations are realistic and that you provide the resources the lateral hire will need to meet these objectives (such as administrative staff and a marketing budget).

Do not forget to consider what you can offer a lateral hire. Compensation is important, but candidates also want to know how working for your firm will contribute to their professional development and affect their personal lives. Will you be able to deliver on any promises — such as a committee chair or flexible work hours — that you make at the recruiting stage?

Related Read: Thinking About Adding Nonequity Partners?

Mentoring lateral hires

Failure to quickly assimilate lateral hires into the business and culture of your firm can easily lead to premature departures and lost clients. In fact, the integration period is when most firms win or lose their lateral hires.

Assign a mentor or sponsor — such as a practice group leader or senior partner — to guide your lateral hire through the first year at your firm. Experienced partners can help new hires get to know colleagues — particularly those with similar interests — and meet existing clients and learn about their needs. Working together with human resources, mentors can help laterals publicize their move and market their services, learn the firm’s processes and technology solutions and resolve conflicts or problems.

For lateral hires who bring clients with them, mentors need to do everything they can to ensure these clients become clients of the firm. Although the vetting process likely started at the recruiting stage, sponsors should help new hires review their client books for any conflicts of interest or liability issues — as well as cross-marketing opportunities.

The job of a sponsor or mentor can be demanding. Consider incentivizing your sponsors so that they feel responsible for the lateral hires’ smooth integration and professional well-being.

Fitting in with firm culture

The best advice for retaining lateral hires applies to all of your attorneys: Create a healthy work environment. This starts by promoting teamwork, open communication, professional development opportunities and recognition — financial and otherwise.

Cultural fit is one of the most important decisions a hiring firm can make. In a Thomson Reuters analysis of lateral candidates, cultural fit was a top issue, with 68% of red flag candidates surfacing some behavioral concern.

Lateral hires that fail to fit in culturally may sour the relationship despite the candidate’s legal skills and business acumen. According to the Decipher/ALM survey, 29% of respondents said lateral partners left because of cultural fit issues with other partners.

You can increase loyalty to your firm by helping lawyers balance their work with personal interests and obligations. Offer flexible and part-time hours — even for partners — and the ability to telecommute, plus benefits such as child care.

Setting expectations

Law firms looking to expand will need to use lateral hires. Doing so successfully requires realistic expectations and smooth assimilation. Using some of the best practices presented here can help your firm succeed.

For more information, contact Tom Pierce at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Law Firm Group.