Season Two, Episode Two of Steve's Rules: Making Bank

The decision to pursue other opportunities is multilayered with no one consideration being more important than the other.  Yet compensation often is a driver. But most professionals including lateral partners at law firms don't do a deep enough dive on a target firm's compensation structure.  Each firm approaches compensation differently. Which means it is incumbent on the candidate to know what is important to them and to ask the right questions.  So to, firms need to be as forthcoming as possible about the compensation structure. Steve knows the ins and outs of compensation systems based on his decades of experience.  Have a listen and if you have more questions, please contact Steve at snelson@tmg-dc.com. Mention Steve's Rules when you call and get a prize.  We mean it.   

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McCormick Group

Contact Murray
M Coffey

Transcript

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Murray, welcome to Steve's rules, periodic podcast featuring Steve Nelson, executive principal at McCormick group in the law and government affairs practice. My name is Murray Coffey, and I am the principal of M Coffey, a law firm marketing and business development Boutique. For more information, please visit my website at M coffey.net Steve has been an executive recruiter for nearly three decades, and without naming names, he is ready to spill the tea on best practices, and maybe a few not so best practices by firms and candidates that he has seen during his career, recruiting some of the most driven and successful professionals into highly profitable and growing firms. Steve is a former lawyer and journalist and is a fellow of the college of law practice management and a proud son of Wilkes Barre, Pennsylvania. Full transparency here, Steve has helped my career immensely through the years and has become something of a career shaman to me and I know many others. Hey, Steve, hey Murray. We are, we are in episode two of season two, and we're going to be talking today about a topic that is near and dear to everybody's heart, which is compensation and so Steve has a lot of interesting and I think, erudite observations about compensation and why candidates need to really think it through more than maybe they are oftentimes. But before we do that, Steve, as you know, we talked about before, the McCormack group is known for the intel that you all are doing on a rolling basis in in the various sectors where you're providing services. And I know you just released a DC report. I think you've got another one coming out, and maybe we've talked a little bit about some of the other stuff that that's going on in the market that's not necessarily related to lateral partner recruiting. So Right? One of heads up, sure, I mean this, you know, we really now got two months of data, and it's there's certainly been some feel out there that the market, lateral markets picking up. And I think that's probably true nationally. What we've found in DC, and it is too early to tell DC, is not really at last year's levels so far, but in Texas, where, of course, we do our report as well, Texas is up significantly, probably on the order of 20% increase in the number of laterals, making moves and including groups so and the group activity even in DC is also strong. So I think we're looking at a good year. DC is a little too early to tell, but but I think the market's coming back. One of the things that I think is probably explains the difference between DC and Texas is corporate is back. I mean, corporate is back as a strong practice area after really struggling for a couple of years. So in Texas, much more corporate work than there's in DC. So therefore, you're going to see more activity as as the partners now feel like they're in a position of strength to move, and that's actually going to key into the compensation a little bit as well. One other point I want to make, which also goes to the strength of the market right now, is we're seeing a significant increase in the amount of work we're doing on the administrative side, and particularly in the area of practice management and knowledge management, got a lot of assignments going on right now, and one of the things that we recently reported on was that the number of am law firms that actually have practice management, personnel, you know, professionals, warrant lawyers, who are helping run the practice route. We're now over half of the am law. 206 seven years ago, it was like, you know, maybe two thirds. I mean, maybe a third so, so there's a lot of significance there. And we're and we're seeing a lot of firms looking for the really good people to handle practice management jobs. If somebody's thinking, usually, when there's a lot of recruiting going on in a particular area, it's a good time for somebody who wants to transition from maybe what they're doing now into this new area, as you think about that, as you think about people who may want to transition from another administrative role in a law firm, and I think it probably has to be somebody coming from a law firm, just given the kind of the nuances that especially practice management requires, what kinds of what kinds of things should people be thinking about in terms of whether. Whether they're in a good position to make that what are the firms looking for with practice management, then we'll move on. But I do think maybe we'll maybe we'll just dedicate a podcast to this at some point, because this is it's actually growing it big. Greg, yeah, definitely. I think that primarily financial management. If you're in a law firm and you're working in the FPA, I think it's if you get the right experience and you really get inside the practice areas and understand the financial parts of the practice areas. It's a pretty good transition point. Now, some of the jobs in practice management, tend to focus a little bit more on the staffing of matters, uses of associates and paralegals and so forth. So there somebody maybe who has been working in professional development may be that may be a good transition point to go into practice management. And I'll just say one other thing, because we're working on one right now, an assignment in the Knowledge Management Area. We think that for attorneys, people who are practicing law, associates, maybe counsel, and let's say they're just maybe they don't want to be a partner. They don't want the partnership track, they don't want the hours, they don't want the business development pressures. One option right now is to become a knowledge management attorney at a big firm, and that will get you into the heart of everything that's going on in the marketplace right now related to technology and artificial intelligence. So this could be a huge role for firms in the future as as this, the you know, the legal practice is changing, and therefore that could be a powerful position in the coming years. So opportunities there as well for practicing attorneys who just, you know, maybe don't want to do that routine. Yeah, yeah. That's, that's a great point. And, you know, it might also be a track for for people coming out of law school who decide that they're not going to, that's not, that's the practicing side, is not where they want to be. I have a lot of thoughts about that, especially about the interplay with with AI, and maybe we'll talk about that at it at another time, because I know we want to get into into our discussion here, and we try to get in and out of these, these discussions in half an hour or less. So. So finally, jump in. So, Steve, we're going to talk about partner comp issues and the, I think, questions that popped in my head and we talked about this before the podcast is podcast, is your you go, you go pretty deep here in your topics, deeper than than, I think a lot of even partners who are making that transition go. So tell me why, that's why, why you're going there. I mean, people hear about confidence. They always think about that top big number, right? What is the big number? You go a lot deeper than that, right? Yeah, I think it's, it's, it's, it's often, it's often a gating issue. In terms of of a lateral partner, you can have some really good, qualified, accomplished lawyers who are partners in law firms, and the because every firm values different things, their compensation can be viewed at their current firm one way, and if they go to look at another firm, it could be viewed a lot different. And I think that's what we're going to get into because sometimes, I mean, this happens close to half the time. I'll talk to a partner, and the point is going to the decision will come up, or I will make, I'll make a comment. It says, I think you're probably, you know, you're better off where you are now, because I don't think a firm is going to compensate you at the level or near the level that you're compensated now. So it's really important in that initial discussion, initial decision making about what, what future career change or am I going to make, is compensation is going to be at the center of that? Yeah, absolutely. And I, you know, there's, I think, you know, increasingly lateral partners are being looked at as as business generators, like new business generators, bringing in existing relationships and bringing and going out and getting new new ones. And so when you have a partner, for example, there's a lot of these partners, and they're extremely valuable in inside the firms, but partners who are have a real history of assisting other partners. You know, maybe it's, maybe it's, you know, referrals of business or with doing first chair work for institutional clients. You know, there's some of these large firms have clients where the relationships go back, especially if you start talking about the big Texas firms. Some of those, some of those, you know, some of those relationships go back to the filing of the articles of incorporation for, you know, well known, well known oil and gas companies. So, so what? What is it? What should a partner? This is a terrible word, but service partner. We're talking about service partner. What should a service partner be thinking about, if they're wanting to make that move, what's the common what are the top reasons? Yeah, you know, so, and I agree with you. It's, it's, I don't like, it's a bit pejorative service. I, you know, I really call it a technician, somebody who's really good at their job, really understands law can make, you know, make decisions with regard to a strategy or a piece of litigation that's Could, could be the difference between winning and losing. So there with in almost every situation, just because of the nuances of the lateral market, people, lawyers, who are pure technicians, are going to find it hard to get to make a move to another firm at all, because that's not what the firms tend to look for. I mean, there are exceptions of that, but for the most part, we don't, we don't get that. What we get sometimes, and this is where I think a lot of the really granular issues relating to compensation come up is the person who is has done business development also, but also acts as a service, partner or as a technician, somebody who has who whose originations at their current firm are a combination of what they've generated and what is being what's what they're being asked to do by the leadership of the firm or their partners. They're trying to be good citizens right within the firm that they're at, and they're taking on the important work that's critical to the firm, that work, you know, is probably not going with them. So that's going to factor in. They're compensated in most firms. They're going to be compensated on the value that they're providing their firm. They're not being compensated on the value of the work they're going to bring to a move, and that's the rub, right? I don't know how many times I run into this, a lot of times where partner comes, comes to me and says, Listen, I really like a move, but, but here's my here's my situation. I'm doing $2 million of business a year. I mean, that's my originations at my current firm, but if I were to move I'm going to only take half of that with me. Again, you're being compensated on the 2 million you're not getting, but another firm will often it's some firms are getting more sophisticated about this, but often you're, they're going to look at you as a million dollar part. And so therefore you've got this mismatch of compensation. It's just, it's kind of right out of the box. It, you know, I could tell you that, that that, having worked in, in sales, and worked with lawyers who are, we're really good at bringing new business in. The firms have to invest a lot more money into landing a new client than in expanding an existing client relationship. And is it, you know, is there an argument that can be made that, you know, I'm a, you know, I'm a technical partner, but what I've been able to do is take a we had this client that we did half a million dollars of work for, and as the years progressed, we did we doubled it and doubled it and doubled it, which isn't hard to do, actually, and it's because of what I can do when I get in with a client. And so my value for you is going to be, I'm bringing this technical expertise and I'm going to expand your existing relationship. Is there a argument to be made? Are firms saying, Yeah, we need that. There is, there is an argument to be made, and it's probably a very good argument. I think that most firms, in most situations, are going to be concerned that, yes, I understand that you're a really good, you know, business builder, but it's going to take you, if I we go to our friend, you know, it's going to take you while they integrate you, as we've talked about on some of the other podcasts couple of years, and we can't afford to pay you at the level that you're at now for two years before you really hit your stroke. Now the exception, I think, comes in in succession, situations where there is a partner who is retiring or thinking about retiring, and they want to bring somebody in who can take over. Clients, and in that situation, it's a very good argument should be made that you know, you're not paying this person on what they're bringing over. You're going to pay this person on what you expect that person to to bill in the first year or two, or and beyond that. And so I think firms are starting to get it. But the problem that firms run into on that is when they take this lateral to the partnership at large, and they have to write the memo to the partner partnership that says, This is why we're hiring. And then the partners say, well, you're paying in X, and he's only bringing over y, and I'm bringing over y plus x, and you're paying me, you know, you're paying me less than him, so you're going to have a blowback from your partnership, even in a succession situation, unless, unless that firm's culture is such that they they all get it, and they all understand it, and they're all in it. They understand that this is a situation that we as a firm need to handle. Yeah, that's that. It's, yeah, well, we can go off on a tangent on this one for a while, because they're, you know, the firms need to be thinking about, sort of having broader views of how they're bringing people in, but, you know, but that might be a podcast for another day. You know, performance bonuses. How do you structure them? You know, you know, there's, there's, there's, there's teamwork in there, there's, there's good, you know, firm citizenship. I you know, maybe this falls under the firm citizenship category, but you know, the the amount of effort that they're putting into different business development criteria, how do you, how do you, how do you, how do you figure that out? Because, yeah, that's, yeah, great question. Is a question that firms struggle with all the time. Um, the really, that's the approach that a lot of firms take to those laterals that you know, the numbers don't quite work, at least with regard to what's you know sure to come over. And of course, firms don't want to, they don't want to take whatever projections that the lateral gives you at face value, because we know that you know the laterals not you know, not intentionally, but they often overestimate what they're going to bring, because they don't understand the nuances of what happens with the client and taking the right matter. But so the firms will go to, okay, we're going to give you a base of this, which is probably less than what that partner is currently making, right? But there'll be some performance bonuses that can get you there and above. Most firms are still focused on originations as the number one category and then, but some firms sort of come up with a combination of originations and the amount of work built. So if you're that type of lawyer where, let's say the succession play, where you're going, you're going to do some valuable work for existing clients, sometimes that gets factored in, but more often than not, the biggest factor is going to be your originations and there. And as we know, what that rewards is hoarding work for yourself and making sure that you get the origination credit and that you're not doing work others. You go into the firm and somebody asks you, you know, you're eight months into your firm, and somebody has Listen, I got this important client, and you're the guy that handle this. Can you help me out on it? And you know, some partners are going to say, I really can't, because I'm not going to get rewarded for right? Yeah, it's, you know, there are some firms that will tell you, so I don't always know if this is, this is as transparent as they want they think it is that they don't track originations, right, right? And, and, so what? How does that? How do you structure a performance bonus with not tracking originations? Or are they actually tracking origination, just not saying, Well, I think in some cases, they're there certainly they're certainly understanding the origination factor. Split that way. But there are firms that that are that don't track it directly, and in that case, it goes. Goes to the work managed category. So if you're the prime lawyer who's handling contact with the client, handling the bills, really responsible for the matter in those firms, that's going to be the number that look at. And that number, you know, often tracks originations. It's not exactly the same, but at least that means that, you know, you don't get caught up in a situation where there's a legacy client and somebody brought it in 25 years ago and is still getting origination credit. But you know, but you as the person who is handling the engagement and responsible for the success of the engagement, you'll get reward. And so I think that is a more preferable situation. Yeah, yeah, it's what I want to add one, one other point on this whole compound, on compensation, because we're seeing an increase, kind of slow increase, in the number of firms that are in closed compensation systems. Yeah, Jones Day is the, you know, sort of the poster boy of that black box, right? The black box, right. Greenberg travels another one. And the those firms, if, if the the partnership has bought into it, and the partnership trusts, trust is really important. Trust the the compensation leaders as to how they're doing it, they can have that can be a huge advantage in the lateral market, because those those people can make those decisions, strategic decisions, to bring somebody in, in a situation where you know you've got important clients that you have to retain, and because of that you will value, you will compensate that person properly, and you don't have to run it by every partner in the firm. So that is the number one, in my mind, the number one advantage of a closed compensation system is that it is better for laterals, I think, and in the when it's run, when it's done properly, close compensation system is, is can be beneficial for everybody, not just the laterals. But, I mean, I think there are questions always about how that's being done, yeah, and that's a, it is. It's a it's a trust factor. And with so many firms growing at the pace that they're growing and growing through lateral acquisition, where the where the the culture of trust that may have been built up over years, with the with the legacy partners, isn't necessarily going to exist with the with the partners that are coming in on a lateral basis. And it is a, it is a firm culture issue. I mean, it speaks to the culture of the firm about how the compensation is handled. And I, you know, I go back and forth on closed, you know, the benefits of closed comp, I think as, I think, as time goes on, you're right, the people who are, who are doing recruiting and need to be more strategic, need to have enough freedom to to work with compensation in such a way that that it, it helps, it helps, you know, maintain market share, because that's really what we're talking about. We're talking about when we're talking about lateral partner recruiting, is we're talking about buying market share, right? And sometimes the market share is, what's more important is maintaining the market share you have. Yeah, the the other, the other important point, um, and this is, this is mostly from the perspective of the lateral and their decision making process is, again, you know this idea of portable business talking about another term that I think is derogatory in nature, sometimes, that, For example, litigators. Litigators are often, yeah, they've got clients that they're hoping won't come back, particularly in a white collar situation, right? And and so litigators are often, it's episodic, you know, you'll bring in business. You know, one year, next year might be a little different. And, but when you're looking at your upcoming year, yeah, and you're looking at it from a portable standpoint, you know, it's going to probably be pretty low because, you know, it's whatever you got on your plate then. And that's what I like loud, what I want laterals to do. I asked them to do is go back over the last five years, and figure out how much of the work that you produced, that you originated, was known to you at the beginning of the year, and how much was just developed because you got a referral your old, you know, law school roommate is the same. General Counsel of a big company called you in on something, whatever it is, I think you'll find that a lot of your work is coming in that way. Well, that doesn't the portable analysis doesn't work, and so it must. Firms need to look at historical trends. They don't do a really good job of doing that, and they don't do it on the LPQ eat. The LPQ is, is sorely lacking in that sort of analysis. So, and laterals, to be fair, they don't, you know, they, they're not thinking about it either. So they're not, they have trouble going back and so, well, did that come in? You know that they really, you know, have trouble with it. So part of it is as you're as you're a as a lawyer at a firm, and you're doing fine, and you're not even thinking about leaving. Pay attention to these, to these dynamics. Pay attention to the the statistical patterns. Pay attention to what you're bringing in and what's being brought in, because you're the key person to handle this. So that's the call that I have, is that lawyers have to be a little more sophisticated about what value they're providing to their firms. Yeah, and I think that's a great if there's one takeaway for for partnership thinking, you know, thinking long term about their their their careers, and maybe where they where they end up, and looking carefully at it, how your business comes in. So you can have that discussion with with a with a recruiter, with whoever it might be saying, look the trends here. Here are the trends. And in my especially the litigators, here's the trends in my portfolio. And it seems like, it seems like I get two to three big pieces of litigation, and that's all you really need in the course of a year, two to three pieces of big litigation. But I don't know in the beginning of q1 that you know when that's when it's going to come in, but I know it's going to come in, because, if that's the rhythm that right, I mean, right. And so, you know, that's asking the firms to take a bit of a bit of a leap of faith with litigators. But you know, litigators also tend to have higher risk tolerance than most lawyers. So wasn't Steve, we're coming up on about 25 minutes here in our discussion. So anything you want to make sure that we cover before we close? And you know any, any way, any you know, if people have questions, how do they get a whole lead? Because there's not a lot of recruiters out there who are going to talk at this stuff as much understanding of the Comp world, right? Um, I pride myself in answering anybody who who writes to me by email calls me. I really try to answer everybody who you know comes in either gets referred in or comes in, you know, through something like this. So definitely send me an email. S Nelson at TMG, hyphen dc.com, and I, you know, and I'll give you, you know, my analysis of your situation. Yeah, that doesn't mean you have any commitment to me at all. It's just a matter of, you know, you know, it's funny. I'll give you a story. I've talked to a guy who's actually, is not, not A, not A, well, he is an attorney, but he's been doing an administrative job for the federal government, actually, and, and he asked me some advice about, you know, a couple of things he's been thinking about. And talked to him for a while, and, you know, and really helped him, actually, hopefully he's going to get an offer from a really good firm. And, you know, I'm, I'm happy, I'm really happy that able to help him out, and I'm not making a penny. And to our listeners out there, Steve is not, is not. Bs in here, you will, you will get a call back from Steve. I can guarantee that. And if you mention the Steve's rules podcast. You'll also get a fruit basket. Maybe chocolate. I think it's probably chocolate is but, yeah, that's what I go for. Don't send me fruit. Let's go for chocolate, chocolate and coffee every time there you go. Man, after my own heart. Alright, Steve. Well, why don't we wrap this up another great, great, rich Steve's rules podcast, and we'll have, we'll have Steve's contact information in the in the show notes and and if you do write the Steve. You immediately add you to the to the to his his list of folks, to get the intel that they're that they're producing, which is invaluable, especially those of you who are on the who are the side of the business where we're trying to source you're trying to source the folks and understand the trends that are going on. So Steve, thank you. Thank you. Always a pleasure, absolutely, absolutely, All right, bye, everybody. You.