BigLaw firm reveals nuts and bolts of its pay system in Harvard case study on collaboration
Posted Oct 15, 2013 11:40 am CDT
Duane Morris encourages collaboration in the way it pays its lawyers, its culture and even the personality traits it seeks in lateral hires, according to a case study that will be used in the Harvard Business School curriculum.
There is a good business reason for collaboration, according to the case study. Client work has become increasingly complex, and large firms are responding with an increased focus on specialization. The high-value work requires multiple lawyers with differing expertise to work together. “Collaboration was, in fact, extremely valuable to firms” in 2013, the case study said. “It allowed them to take on increasingly sophisticated client work, which in turn let them charge higher prices.”
Partners told Harvard business professor Heidi Gardner and her researcher that Duane Morris doesn’t pay outsize compensation for being a rainmaker, and doesn’t pay based on billable hours alone. The system encourages collaboration rather than fights over origination credit and the hogging of work.
The compensation calculation begins with metrics that show the profitability of each lawyer.
Attorney profitability is calculated by comparing the revenue collected on a lawyer’s matters with the costs of that lawyer, measured by the lawyer’s salary and overhead, according to the case study. If Attorney X earned $200,000 and cost $190,000 in overhead, Attorney X’s costs to the firm for the year were $390,000. If X worked 2,000 hours, the cost per hour worked out to $195. The findings can then be used to see whether X was more or less profitable than he should be.
Duane Morris chairman John Soroko told Harvard researchers why the numbers were important. “Many firms just look at the size of each person’s book of business,” he said. They see three lawyers with $4 million worth of business, and compensate all of them the same for their rainmaking, he said. But those firms aren’t looking at the costs and value associated with that business, he said.
The profitability calculation primarily drives pay, but the executive committee looks at other factors, taking into account a self-evaluation memo written by each lawyer. Mentoring, administrative roles, the ability to generate new business, internal referrals, the efficiency of the partner’s team, attitude and work habits enter into the calculation. Any partner may see the full array of compensation information, though “remarkably few” ask to see the numbers.
Partner Sharon Caffrey told researchers that the compensation system doesn’t overemphasize rainmaking. “There is a balance between rainmaking and work effort,” Caffrey said, “so we don’t have a lot of rainmakers with huge books of business receiving credit disproportionately, who then have many service partners who do not receive credit for helping the rainmakers achieve success.”
The case study notes several ways that Duane Morris encouraged collaboration:
• Duane Morris looks for specific personality traits in lateral hires. The ideal partner candidate is collegial, task-oriented and a team player. In associate recruiting, the firm also wants collegial personalities and seeks people who want to stay at the firm for the long-term.
• Duane Morris tries to integrate lateral partners through assigned mentors and an “integration team” that identifies opportunities to present the lateral’s practices to clients and internal practice groups.
• Chief operating officer Charles O’Donnell is “unbelievably straightforward” when connecting lawyers with others outside their practice area who can help on a legal matter. According to the unnamed partner, O’Donnell has said things such as: “Here are three people and here is what I know about them. The person presents really well in front of clients, but doesn’t roll up his or her sleeves and get into details as much as others. This person is unbelievably bright, sharp and hardworking, but awkward socially. And this person is probably not the right choice if the deal is going to require weekends and holidays.” Partners also seek others with relevant expertise through emails to other partners.