Asked and Answered

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

Q. Our firm is a 12 attorney firm located in downtown Chicago. We have 8 partners and 4 associates. We are considering making a change to our associate compensation system. Currently associates are paid a salary plus a discretionary bonus at the end of the year. We are considering continuing to pay them a salary plus 60% of any business they bring in (origination). Does this plan make sense?

A. I don’t think so. I would need to know more about your financial situation, your overhead, and profit ratio. You and your partners should expect to make a profit from your associates. I believe you should expect to realize a profit margin of 25% - 30%. After factoring in firm overhead and associate compensation I don't believe you will be able to give away 60% and realize this goal -- 20%-30% may be all that you should incorporate into a bonus system. Be careful that a bonus system such as this accomplishes what you are seeking to accomplish and that you don't create a lone-ranger culture.

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John W. Olmstead, MBA, Ph.D, CMC,(www.olmsteadassoc.com) 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 listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com